ARES CAPITAL CORPARCC
ARES CAPITAL CORP Income Taxes Disclosure
11. INCOME AND EXCISE TAXES
For U.S. federal income tax purposes, amounts distributed to the Company’s stockholders as dividends are reported as ordinary income, capital gains, or a combination thereof. Dividends paid per common share for the years ended December 31, 2025, 2024 and 2023 were taxable as follows (unaudited):
| For the Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Ordinary income(1) | $ | 1.92 | $ | 1.92 | $ | 1.92 | |||||||||||
| Capital gains | — | — | — | ||||||||||||||
| Total(2) | $ | 1.92 | $ | 1.92 | $ | 1.92 | |||||||||||
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(1)For the years ended December 31, 2025, 2024 and 2023, ordinary income included dividend income of approximately $0.5635, $0.3137 and $0.0296 per share, respectively, that qualified to be taxed at the maximum capital gains rate and, in the case of certain eligible corporate stockholders, dividends that were eligible for the dividends received deduction.
(2)For the years ended December 31, 2025, 2024 and 2023, the percentage of total dividends paid that constituted interest-related dividends were 85.1%, 88.6% and 80.5%, respectively.
The following reconciles net increase in stockholders’ equity resulting from operations to taxable income for the years ended December 31, 2025, 2024 and 2023:
| For the Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (Estimated)(1) | |||||||||||||||||
| Net increase in stockholders’ equity resulting from operations | $ | 1,299 | $ | 1,522 | $ | 1,522 | |||||||||||
| Adjustments: | |||||||||||||||||
| Net realized gains (losses) on investments, foreign currency and other transactions | 75 | (136) | (440) | ||||||||||||||
| Income not currently taxable(2) | (186) | (203) | (157) | ||||||||||||||
| Income for tax but not book | 361 | 233 | 60 | ||||||||||||||
| Expenses not currently deductible | 157 | 76 | 21 | ||||||||||||||
| Realized gain/loss differences(3) | (246) | 17 | 60 | ||||||||||||||
| Taxable income | $ | 1,460 | $ | 1,509 | $ | 1,066 | |||||||||||
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(1)The calculation of estimated 2025 U.S. federal taxable income is based on certain estimated amounts, including information received from third parties and, as a result, actual 2025 U.S. federal taxable income will not be finally determined until the Company’s 2025 U.S. federal tax return is filed in 2026 (and, therefore, such estimate is subject to change).
(2)Includes a reduction for dividend income from preferred equity that is not taxable until collected totaling $268, $257 and $198, respectively, net of dividend income collected of $149, $33 and $11, respectively, for the years ended December 31, 2025, 2024 and 2023, respectively.
(3)Certain realized gain/loss differences are the result of the realization of certain tax only capital losses on the investments and liabilities acquired in the acquisition of Allied Capital Corporation in April 2010 (the “Allied Acquisition”). Because the Allied Acquisition was a “tax-free” reorganization under the Code, realized losses for tax purposes can differ from GAAP. Note that unlike the Allied Acquisition, the acquisition of American Capital, Ltd. in January 2017 was treated as a taxable purchase of the American Capital assets for purposes of the Company’s taxable income calculations; therefore, realized gains or losses for tax purposes are generally consistent with realized gains or losses under GAAP.
Taxable income generally differs from net increase in stockholders’ equity resulting from operations for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized gains or losses, as unrealized gains or losses are generally not included in taxable income until they are realized. In addition, on April 1, 2010, the Company acquired Allied Capital Corporation in a “tax-free” merger under the Code, which has caused certain merger-related items to vary in their deductibility for GAAP and tax purposes.
Capital losses in excess of capital gains earned in a tax year may generally be carried forward and used to offset capital gains, subject to certain limitations. As of December 31, 2025, the Company estimates that it will have a capital loss carryforward of approximately $278 available for use in later tax years. While the Company’s ability to utilize losses in the future depends on a variety of factors that cannot be known in advance, approximately $92 of the capital loss carryforwards will be subject to limitations under Section 382 of the Code. The unused balance will be carried forward and utilized as gains are realized, subject to such limitations.
For the year ended December 31, 2025, the Company estimated U.S. federal taxable income exceeded its distributions made from such taxable income during the year; consequently, the Company has elected to carry forward the excess for distribution to stockholders in 2026. The amount carried forward to 2026 is estimated to be approximately $988, substantially all of which is expected to be ordinary income, although these amounts will not be finalized until the 2025 tax returns are filed in 2026. For the years ended December 31, 2024 and 2023, the Company had taxable income in excess of the distributions made from such taxable income during the year, and therefore, the Company elected to carry forward the excess for distribution to stockholders in 2025 and 2024, respectively. The amounts carried forward to 2025 and 2024 were $878 and $631, respectively. To the extent that the Company determines that its estimated current year annual taxable income will exceed its estimated current year dividends from such taxable income, the Company accrues excise tax on estimated excess taxable income. For the years ended December 31, 2025, 2024 and 2023, a net expense of $37, $35 and $23, respectively, was recorded for U.S. federal excise tax. The net expense for the years ended December 31, 2025 and 2024 each included a reduction in expense related to an expected refund request arising from the overpayment of the prior year’s excise tax of $2 and $1, respectively.
As of December 31, 2025, the estimated cost basis of investments for U.S. federal tax purposes was $29.2 billion resulting in estimated gross unrealized gains and losses of $1.3 billion and $1.0 billion, respectively. As of December 31, 2024, the estimated cost basis of investments for U.S. federal tax purposes was $26.5 billion resulting in estimated gross unrealized gains and losses of $1.7 billion and $1.5 billion, respectively. As of December 31, 2025 and 2024, the cost of investments for U.S. federal tax purposes was less than the amortized cost of investments for book purposes of $29.3 billion and $26.4 billion, respectively.
The Company may adjust the classification of stockholders’ equity as a result of permanent book-to-tax differences, which may include merger-related items, differences in the book and tax basis of certain assets and liabilities, and nondeductible federal taxes (including excise taxes), among other items. These adjustments are reclassifications among the individual components of stockholders’ equity and have no effect on total stockholders’ equity. For the year ended December 31, 2025, the Company decreased capital in excess of par value by $158 and increased accumulated undistributed/ (overdistributed) earnings by $158 in the consolidated statement of stockholders’ equity. After adjusting for these reclassifications, the capital in excess of par value, accumulated undistributed net investment income, accumulated net realized losses and accumulated net unrealized gains were $13,359, $1,077, $(270) and $151, respectively. The adjustments made for the year ended December 31, 2025 are based on certain estimated amounts and assumptions and, as a result, such adjustments are subject to change until the Company’s 2025 U.S. federal tax return is filed in 2026. For the year ended December 31, 2024, the Company decreased capital in excess of par value by $87 and increased accumulated undistributed/(overdistributed) earnings by $87 in the consolidated statement of stockholders’ equity. After adjusting for these reclassifications, the capital in excess of par value, accumulated undistributed net investment income, accumulated net realized losses and accumulated net unrealized gains were $12,502, $921, $(316) and $247, respectively.
Certain of the Company’s consolidated subsidiaries are subject to U.S. federal and state income taxes. For the years ended December 31, 2025, 2024 and 2023, the Company recorded a net tax expense (benefit) of approximately $121, $38 and $(3), respectively, for these subsidiaries.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 4, 2026 | Showing above |
| 2023 | Feb 7, 2024 | |
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.