Aura Biosciences, Inc. Income Taxes Disclosure

14. Income Taxes

The Company has recorded a $0.1 million tax provision for the periods presented due to the current state income taxes and the losses incurred, the need for a full valuation allowance on net deferred tax assets, and for the current foreign income taxes. The difference between the income tax provision at the U.S. federal statutory rate and the recorded provision is primarily due to the valuation allowance recorded on all deferred tax assets.

The majority of the effect of state and local taxes, net of federal benefit, comes from the jurisdiction of Massachusetts.

The Company paid $0.1 million for income taxes during each of the years ended December 31, 2025 and 2024. The majority of the income taxes paid during each of the years ended December 31, 2025 and 2024 were for state income taxes related to the jurisdiction of Massachusetts. Income taxes paid related to other jurisdictions during each of the years ended December 31, 2025 and 2024 were not material to the consolidated financial statements.

As of December 31, 2025, the Company had accumulated federal net operating loss, NOL, carryforwards of approximately $318.9 million which may be available to offset future taxable income, of which $32.4 million begin to expire in 2034 and go through 2037 and $286.5 million do not expire. The Company had accumulated state NOL carryforwards of $274.4 million, which may be available to offset future taxable income and begin to expire in 2030, except for $2.2 million of state NOLs that do not expire. As of December 31, 2025, the Company had federal and state research and development credit carryforwards of $8.5 million and $3.8 million, respectively, which may be available to offset future income tax liabilities and begin to expire in 2038 and 2034, respectively. Additionally, the Company had $20.4 million of federal orphan drug credits that begin to expire in 2039.

The Company’s NOL 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 percent as defined under Section 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended, as well as similar state provisions. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. The Company conducted a Section 382 study covering the period of January 15, 2009 through December 31, 2024. The study concluded that ownership changes occurred during that period which limit the amount of the Company’s NOLs and tax credit carryforwards that can be utilized before expiring. The NOL and credit carryforwards disclosed in the financial statements represent the amount of attributes that can be utilized before expiration based on the results of the study. The Company has not yet completed an analysis of ownership changes for the year ended December 31, 2025 and there could be material changes to NOLs depending on the results of the analysis when performed. The Company also conducted a study of its research and development credit and orphan drug credit carryforwards. The study resulted in a net increase to its federal and state credit carryforwards of $12.1 million and $0.2 million, respectively, that was recorded during the period ending December 31, 2025. A full valuation allowance has been recorded against the Company’s credit carryforwards, so there is no net impact to the consolidated balance sheets or statements of operations and comprehensive loss.

Management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are principally comprised of NOL carryforwards, tax credit carryforwards, and capitalized research and development expenses. Management has determined that it is more likely than not that the Company will not realize the benefits of its deferred tax assets, and as a result, a valuation allowance of $145.7 million has been recorded at December 31, 2025. The increase in the valuation allowance of $39.9 million during the year ended December 31, 2025 was primarily due to the increase in NOLs and tax credit carryforwards generated by the Company.

As of December 31, 2025 and 2024, the Company had no unrecognized tax benefits. Interest and penalty charges, if any, related to income taxes would be classified as a component of the income tax provision in the consolidated statements of operations and comprehensive loss.

The Company files income tax returns in the United States federal tax jurisdiction and several state tax jurisdictions as well as in the Netherlands and Germany for its foreign subsidiaries. Since the Company is in a loss carryforward position, it is generally subject to examination by federal and state tax authorities for all tax years in which a loss carryforward is available.

With respect to the income of its foreign subsidiaries, the Company asserts the position that the undistributed earnings of its foreign subsidiaries are permanently invested in each jurisdiction. As a result, no additional income taxes have been provided on the possible repatriation of these earnings to the parent company. The Company does not have any unremitted earnings as of December 31, 2025.