14. Income Taxes

For the years ended December 31, 2024 and 2023, the loss before income taxes consisted of the following:


	2024			2023
Domestic	$	(86,185	)	$	(76,191	)
Foreign		(622	)		(80	)
Total	$	(86,807	)	$	(76,271	)

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 and the need for a full valuation allowance on net deferred tax assets. 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 Company's income tax provision, net consisted of the following:


	2024		2023
Components of income tax provision:
Current:
Federal	$	—	$	—
State		112		137
Foreign		—		—
Total Current		112		137
Deferred:
Federal		—		—
State		—		—
Foreign		—		—
Total Deferred		—		—
Total Income Tax Provision	$	112	$	137

A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate as of December 31, 2024 and 2023 is as follows:


	2024			2023
Income tax provision at statutory rate		21.0	%		21.0	%
State taxes, net of federal benefit		4.6	%		6.6	%
Federal tax credits		3.6	%		2.3	%
Permanent items		(1.6	)%		(1.0	)%
Other		(0.1	)%		(0.1	)%
Decrease in valuation reserve		(27.5	)%		(28.8	)%
Total		0.0	%		0.0	%

Temporary differences that give rise to significant deferred tax assets (liabilities) as of December 31, 2024 and 2023 are as follows (in thousands):


	2024			2023
Deferred tax assets:
Net operating loss carryforwards	$	55,826		$	45,999
Stock-based compensation expense		2,450			2,110
Capitalized research and development expenses		32,422			22,068
Tax credit carryforwards		13,582			10,007
Accrued expenses and other current liabilities		1,025			1,018
Lease liability		4,903			5,282
Other		938			766
Total deferred tax assets		111,146			87,250
Deferred tax liabilities:
Right-of-use assets		(4,540	)		(5,092	)
Depreciable assets		(312	)		(225	)
Prepaid expenses and other current assets		(443	)		—
Valuation allowance		(105,851	)		(81,933	)
Net deferred tax assets	$	—		$	—

As of December 31, 2024, the Company had accumulated federal net operating loss carryforwards of approximately $209.8 million which may be available to offset future taxable income, of which $44.2 million begin to expire in 2029 and go through 2037 and $165.6 million do not expire. The Company had accumulated state net operating loss carryforwards of $183.6 million, which may be available to offset future taxable income and begin to expire in 2030, except for $1.2 million of state net operating losses, or NOLs, that do not expire. The Company had accumulated foreign net operating loss carryforwards of $0.7 million, which may be available to offset future taxable income and do not expire. As of December 31, 2024, the Company had federal and state research and development credit carryforwards of $11.3 million and $2.9 million, respectively, which may be available to offset future income tax liabilities and begin to expire in 2029 and 2028, respectively.

The Company’s ability to use its operating loss carryforwards and tax credit carryforwards to offset taxable income is subject to restrictions under Sections 382 and 383 of the Code. Under the Code provisions, certain substantial changes in the Company’s ownership, including the sale of the Company or significant changes in ownership due to sales of equity, have limited and may limit in the future, the amount of net operating loss carryforwards which could be used annually to offset future taxable income. The Company has not yet completed an analysis of ownership changes. The Company may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside the Company’s control. As a result, the Company’s ability to use our pre-change NOLs to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to the Company. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. All federal NOLs generated post tax reform have an indefinite life, are not subject to carryback provisions, and limited to 80% of taxable income in any year.

The Company has not conducted a study of its research and development credit carryforwards. A study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed, and any adjustment is known, no amounts will be presented as an uncertain tax position. A full valuation allowance has been recorded against the Company’s research and development credit carryforwards and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the consolidated balance sheets or statements of operations and comprehensive loss at this time, if an adjustment were required.

Management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are principally comprised of NOL carryforwards and tax credit carryforwards. 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 $105.9 million has been recorded at December 31, 2024. The increase in the valuation allowance of $23.9 million during the year ended December 31, 2024 was primarily due to the increase in net operating losses generated by the Company and capitalized R&D expenses related to the Section 174 requirements.

As of December 31, 2024 and 2023, 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 does not expect any significant change in its uncertain tax positions in the next twelve months.

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, 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.

Aura Biosciences, Inc. Income Taxes Disclosure

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