Astera Labs, Inc.ALAB
Astera Labs, Inc. Income Taxes Disclosure
Income Taxes
The U.S. and non-U.S. components of income (loss) before income taxes consist of the following (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| United States | $ | 217,937 | $ | (83,550) | $ | (23,655) | |||||||||||
| International | 216 | 1,772 | 707 | ||||||||||||||
Income (loss) before incomes taxes | $ | 218,153 | $ | (81,778) | $ | (22,948) | |||||||||||
The income tax (benefit) provision consists of the following (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current | |||||||||||||||||
| U.S. Federal | $ | (2,051) | $ | 1,141 | $ | 3,144 | |||||||||||
| State | (21) | (8) | 206 | ||||||||||||||
| International | 1,072 | 510 | (41) | ||||||||||||||
| Total current tax expense | (1,000) | 1,643 | 3,309 | ||||||||||||||
| Deferred | |||||||||||||||||
| U.S. Federal | — | — | — | ||||||||||||||
| State | — | — | — | ||||||||||||||
| International | 19 | — | — | ||||||||||||||
| Total deferred tax expense | 19 | — | — | ||||||||||||||
| Total income tax (benefit) expense | $ | (981) | $ | 1,643 | $ | 3,309 | |||||||||||
The tax (benefit) expense differs from the U.S. federal statutory tax expenses as follows:
| Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||||||||||||||||
| U.S. federal statutory income tax | $ | 45,812 | 21.0 | % | $ | (17,163) | 21.0 | % | $ | (4,819) | 21.0 | % | ||||||||||||||||||||||||||
| Domestic federal | ||||||||||||||||||||||||||||||||||||||
| Tax credits | ||||||||||||||||||||||||||||||||||||||
| Research & development tax credits | (65,713) | (30.1) | (50,306) | 61.5 | (3,369) | 14.7 | ||||||||||||||||||||||||||||||||
| Other | — | — | — | — | (30) | 0.1 | ||||||||||||||||||||||||||||||||
| Nontaxable or nondeductible items | ||||||||||||||||||||||||||||||||||||||
| Non-deductible compensation (stock-based compensation and officer compensation limitation) | 78,681 | 36.1 | 31,717 | (38.8) | (145) | 0.6 | ||||||||||||||||||||||||||||||||
| Excess tax benefits of stock-based compensation | (171,198) | (78.5) | (75,491) | 92.3 | (4,472) | 19.5 | ||||||||||||||||||||||||||||||||
| Incentive stock options /ESPP disqualifying disposition | (6,862) | (3.1) | (6,587) | 8.1 | — | — | ||||||||||||||||||||||||||||||||
| R&D credit add-back | 12,625 | 5.8 | — | — | — | — | ||||||||||||||||||||||||||||||||
| Capitalized US R&D costs | — | — | 2,585 | (3.2) | — | — | ||||||||||||||||||||||||||||||||
| Other nontaxable or nondeductible items | (252) | (0.1) | 200 | (0.2) | 121 | (0.5) | ||||||||||||||||||||||||||||||||
| Cross-border tax laws | ||||||||||||||||||||||||||||||||||||||
| Foreign-derived intangible income | 3,624 | 1.7 | (8,325) | 10.2 | — | — | ||||||||||||||||||||||||||||||||
| Other | — | — | 49 | (0.1) | 78 | (0.4) | ||||||||||||||||||||||||||||||||
| Effect of changes in tax laws or rates enacted in the current period | ||||||||||||||||||||||||||||||||||||||
| Changes in valuation allowance | 87,167 | 40.0 | 112,297 | (137.3) | 15,636 | (68.1) | ||||||||||||||||||||||||||||||||
| Other | (4) | — | 102 | (0.1) | — | — | ||||||||||||||||||||||||||||||||
Domestic state and local income taxes, net of federal effect (1) | (6,900) | (3.2) | (5,140) | 6.3 | (263) | 1.1 | ||||||||||||||||||||||||||||||||
| Foreign tax effects | ||||||||||||||||||||||||||||||||||||||
| Canada | ||||||||||||||||||||||||||||||||||||||
| Research and development tax credits | (1,741) | (0.8) | (1,143) | 1.4 | (588) | 2.5 | ||||||||||||||||||||||||||||||||
| Other | 1,411 | 0.6 | 922 | (1.1) | 442 | (1.9) | ||||||||||||||||||||||||||||||||
| Other foreign jurisdictions | 1,381 | 0.6 | 359 | (0.5) | (44) | 0.2 | ||||||||||||||||||||||||||||||||
| Changes in unrecognized tax benefits | 20,988 | 9.6 | 17,567 | (21.5) | 762 | (3.3) | ||||||||||||||||||||||||||||||||
(Benefit) provision for income taxes/ effective tax rate | $ | (981) | (0.4) | % | $ | 1,643 | (2.0) | % | $ | 3,309 | (14.5) | % | ||||||||||||||||||||||||||
__________________
(1) State taxes in California comprise the majority of the state and local income taxes, net of federal effect category.
The income taxes paid, net of refunds as follows:
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| U.S. federal | $ | 500 | $ | 6,583 | $ | 2,450 | |||||||||||
U.S. state and local | |||||||||||||||||
| Oregon | * | 598 | * | ||||||||||||||
| Other | 30 | 234 | 27 | ||||||||||||||
| 530 | 7,415 | 2,477 | |||||||||||||||
| Foreign | |||||||||||||||||
| India | 626 | * | * | ||||||||||||||
| Israel | 262 | * | * | ||||||||||||||
| China | 159 | * | * | ||||||||||||||
| Taiwan | 88 | * | * | ||||||||||||||
Other * | (26) | 378 | * | ||||||||||||||
| 1,109 | 378 | * | |||||||||||||||
| Total | $ | 1,639 | $ | 7,793 | $ | 2,477 | |||||||||||
* The amount of income taxes paid during the year does not meet the 5% disaggregation threshold and therefore included in “Other” category.
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of the temporary differences and carryforwards that give rise to deferred tax assets and liabilities consist of the following (in thousands):
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets | |||||||||||
| Net operating losses | $ | 59,316 | $ | 1,115 | |||||||
| General business credits | 120,753 | 48,512 | |||||||||
Intangibles | 71,301 | 98,754 | |||||||||
| Stock-based compensation | 14,855 | 14,874 | |||||||||
| Lease Liabilities | 5,988 | 167 | |||||||||
| Other | 4,359 | 6,873 | |||||||||
| Total deferred tax assets before valuation allowance | 276,572 | 170,295 | |||||||||
| Deferred tax liabilities | |||||||||||
| ROU assets | (5,991) | (179) | |||||||||
| Fixed assets | (2,349) | (1,206) | |||||||||
| Stock-based compensation – Section 83(b) elections | (23) | (502) | |||||||||
| Others | (1,316) | (115) | |||||||||
| Total deferred tax liabilities | (9,679) | (2,002) | |||||||||
| Less: valuation allowance | (270,299) | (168,293) | |||||||||
| Net deferred tax assets after valuation allowance | $ | (3,406) | $ | — | |||||||
In determining the need for a valuation allowance, the Company reviewed both positive and negative evidence pursuant to the requirements of ASC 740, Income Taxes, including current and historical results of operations, future income projections, and potential tax planning strategies. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the 3-year period ended December 31, 2025. Such objective evidence limits the ability to consider other subjective evidence such as its projections for future growth. On the basis of this evaluation, as of December 31, 2025, a valuation allowance of $270.3 million has been recorded, which reflects an increase in the valuation allowance of $102.0 million for the year ended December 31, 2025. As of December 31, 2024, a valuation allowance of $168.3 million has been recorded, which reflects an increase in the valuation allowance of $129.0 million for the year ended December 31, 2024. The determination of the realizability of deferred tax assets requires significant judgment in assessing if there is sufficient positive evidence to support a conclusion that it is more likely than not the deferred tax assets will be realized. If we continue to achieve positive operating results, we may release the valuation allowance associated with our U.S. deferred tax assets in future periods. A release of all, or a portion, of the valuation allowance would result in the recognition of certain deferred tax assets and may result in a material decrease to income tax expense for the period the release is recorded.
As of December 31, 2025 and 2024, the Company had gross federal net operating loss carryforwards of approximately $269.6 million and $1.8 million, respectively, which can be carried forward indefinitely, and state net operating loss carryforwards of $19.1 million and $10.4 million, respectively, which begin to expire in 2039. In addition, as of December 31, 2025 and 2024 the Company had federal research credit carryforwards of approximately $109.3 million and $43.6 million, respectively, which begin to expire in 2039, California research credit carryforwards of $68.1 million and $33.2 million, respectively, which can be carried forward indefinitely, and Canadian research credit carryforwards of $2.7 million and $2.0 million, respectively, which begin to expire in 2042. Net operating losses and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has performed a preliminary Section 382 analysis through December 31, 2022 and based on this analysis, approximately $0.2 million of its federal R&D credits will expire unutilized and has therefore removed them from the deferred tax asset and related carryforward disclosures as of December 31, 2022. No further Section 382 analysis was performed for 2024 and 2025 as the Company does not expect any limitation relating to ownership change due to the increased valuation of the Company.
The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the Company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized tax benefits.” A liability is recognized (or amount of the tax attribute carry forward reduced) for unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.
The Company had approximately $45.9 million and $23.1 million unrecognized tax benefits as of December 31, 2025 and 2024, respectively. The unrecognized tax benefits, if recognized, would not have an impact on the Company’s effective tax rate due to the valuation allowance position.
A reconciliation of the beginning and ending amount of the Company’s unrecognized tax benefits is as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance, beginning of period | $ | 23,070 | $ | 3,993 | $ | 3,162 | |||||||||||
| Decreases related to prior year tax positions | (1,104) | — | (1,024) | ||||||||||||||
| Increases related to current year tax positions | 23,921 | 18,608 | 1,855 | ||||||||||||||
| Increases related to prior year tax positions | — | 469 | — | ||||||||||||||
| Balance, end of period | $ | 45,887 | $ | 23,070 | $ | 3,993 | |||||||||||
It is the Company’s policy to include penalties and interest expense related to income taxes as a component of income tax provision. The Company determined that no interest and penalties related to unrecognized tax benefits was required as of December 31, 2025 and 2024, respectively.
The Company is not currently under examination by the United States Internal Revenue Service or any other state, city, local or foreign jurisdiction. The Company’s tax years from inception are subject to examination by the Internal Revenue Service and state taxing authorities.
Deferred income taxes have not been provided for undistributed earnings of the Company’s consolidated foreign subsidiaries because of the Company’s intent to reinvest such earnings indefinitely in active foreign operations. The Company believes that future domestic cash generation will be sufficient to meet future domestic cash needs. The Company has not recorded a deferred tax liability on the undistributed earnings of non-U.S. subsidiaries.
On July 4, 2025, the One Big Beautiful Bill Act was signed into law. The legislation includes a broad range of tax reform provisions affecting businesses including, but not limited to, the reinstatement of 100% bonus depreciation, immediate expensing of domestic R&D costs, and revisions to the U.S. taxation of profits derived from international operations. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company has assessed the effects of the new tax legislation, including immediate expensing of domestic research and development expenditures for the calendar year, and the results have been reflected in the Form 10-K for the year ended December 31, 2025.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 20, 2026 | Showing above |
| 2024 | Feb 14, 2025 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.