Alto Neuroscience, Inc.ANRO
Alto Neuroscience, Inc. Income Taxes Disclosure
Income Taxes
Provision for Income Taxes
There is no provision for income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets. In 2025 and 2024, substantially all of the Company’s net losses were generated in the United States.
The effective tax rate of the Company’s provision (benefit) for income taxes differs from the U.S. federal statutory rate as follows:
| December 31, 2025 | |||||||||||
Amounts (in thousands) | Percentage | ||||||||||
| Statutory U.S. federal income tax rate | $ | (13,280) | 21.0 | % | |||||||
| State and Local income taxes, net of related federal income tax benefit | — | — | |||||||||
| Foreign tax effects | 134 | (0.2) | |||||||||
| Effects of cross-border tax laws | — | — | |||||||||
| Tax credits | (1,640) | 2.6 | |||||||||
| Changes in valuation allowances | 14,205 | (22.5) | |||||||||
| Nontaxable or nondeductible items | 581 | (0.9) | |||||||||
| Changes in unrecognized tax benefits | — | — | |||||||||
| Other adjustments | — | — | |||||||||
| Income tax provision (benefit) | $ | — | — | % | |||||||
| December 31, 2024 | ||||||||
| Statutory rate | 21.0 | % | ||||||
| State taxes, net of federal tax benefit | (0.5) | |||||||
| Research and development tax credits | 2.5 | |||||||
| Change in valuation allowance | (23.4) | |||||||
| Other | 0.4 | |||||||
| Income tax provision (benefit) | — | % | ||||||
Deferred Tax Assets and Valuation Allowance
Deferred tax assets reflect the tax effects of net operating losses (“NOLs”), and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The most significant item of deferred tax assets is derived from the Company’s federal NOLs.
The most significant components of the Company’s deferred tax assets (liabilities) are as follows (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 19,792 | $ | 12,124 | |||||||
| Stock-based compensation | 3,421 | 1,975 | |||||||||
| R&D deferred costs | 20,279 | 17,364 | |||||||||
| Accrued expenses and other, net | 2,138 | 2,064 | |||||||||
| Tax credit carryforwards | 6,605 | 4,331 | |||||||||
| Lease liability | 1,393 | 1,507 | |||||||||
| Total deferred tax assets | 53,628 | 39,365 | |||||||||
| Less: valuation allowance | (52,142) | (37,400) | |||||||||
| Net deferred tax assets | 1,486 | 1,965 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Right of use lease asset | (1,193) | (1,409) | |||||||||
| Fixed assets | (293) | (556) | |||||||||
| Total deferred tax liabilities | $ | (1,486) | $ | (1,965) | |||||||
| Net deferred taxes | $ | — | $ | — | |||||||
A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. The Company has established a valuation allowance to offset the gross deferred tax assets as of December 31, 2025 and 2024 due to the uncertainty of realizing future tax benefits from its NOL carryforwards and other deferred tax assets. The valuation allowance increased by $14.7 million and $14.4 million during the years ended December 31, 2025 and 2024, respectively.
At December 31, 2025, the Company had U.S. federal gross NOL carryforwards of $78.5 million, state gross NOL carryforwards of $33.6 million, foreign gross NOL carryforwards of $3.2 million, and tax credit carryforwards of $6.6 million. State NOL carryforwards begin to expire in 2039 and tax credit carryforwards will begin to expire in 2042 with $0.8 million of tax credit carryforwards having no expiration. US federal and foreign gross NOL carryforwards have no expiration.
The Company’s NOL and tax credit carryforwards could be subjected to a limitation pursuant to a cumulative change in substantial ownership as identified in Sections 382 and 383 of the Internal Revenue Code and similar state provisions. These ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company completed a study and determined that historical changes, under Section 382 and 383, have occurred and as a result approximately $72.9 million of the gross NOLs and $5.4 million of net tax credits carryforwards are subjected to the limitation. These related gross federal NOLs are subject to a full valuation allowance as of December 31, 2025. The Company will continue to monitor equity movement and its impact on the utilization of the NOLs and credits as the Company could experience subsequent ownership changes which may result in additional limitations on the utilization of NOL and credit carryforwards.
The Company is subject to income taxes in the U.S. federal jurisdiction, various state and local jurisdictions and in one foreign tax jurisdiction. The Company’s tax years from inception through 2025 are subject to examination by the U.S., state, and foreign tax authorities due to the carryforward of unutilized NOLs and research and development credits. The Company is not currently under examination in any tax jurisdictions.
On July 4, 2025, new legislation (commonly known as the One Big Beautiful Bill Act or OBBBA) was enacted into law in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain provisions that were originally enacted in the 2017 Tax Cuts and Jobs Act and were set to expire on December 31, 2025, modifications to certain international tax provisions and the restoration of tax treatment for certain business provisions, including 100% bonus depreciation for certain qualified property, domestic research and experimental cost expensing, and the business interest expense limitation. The new legislation has multiple effective dates, with certain provisions effective in 2025 and
others implemented through 2027. The impact is not material to the financial statements due to the Company’s full valuation allowance.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 16, 2026 | Showing above |
| 2024 | Mar 20, 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.