Brilliant Earth Group, Inc.BRLT
Brilliant Earth Group, Inc. Income Taxes Disclosure
INCOME TAXES AND TAX RECEIVABLE AGREEMENT
Overview of Income Taxes
Brilliant Earth Group, Inc. is taxed as a subchapter C corporation and is subject to federal and state income taxes. Brilliant Earth Group, Inc.'s sole material asset is its ownership interest in Brilliant Earth, LLC, which is a limited liability company that is taxed as a partnership for U.S. federal and certain state and local income tax purposes. Brilliant Earth, LLC’s net taxable income or loss and related tax credits, if any, are passed through to its members on
a pro-rata basis and included in the member’s tax returns. The income tax burden on the earnings taxed to the non-controlling interest holders is not reported by the Company in its consolidated financial statements under GAAP.
The Company files U.S. federal and certain state income tax returns. The income tax returns of the Company are subject to examination by U.S. federal and state taxing authorities for various time periods, depending on those jurisdictions’ rules, generally after the income tax returns are filed.
The Company did not pay or receive any material federal or state income taxes during the years ended December 31, 2025 and 2024, respectively.
Deferred Tax Asset and Income Tax Expense
The Company had recorded a deferred tax asset primarily related to the outside basis difference between GAAP and reporting for income tax purposes of the Brilliant Earth Group, Inc.’s investment in Brilliant Earth, LLC. The basis difference resulted from the step-up in basis allowed under Section 743(b) and 197 of the Internal Revenue Code related to the purchase of LLC Units from the Continuing Equity Owners. The deferred tax asset was expected to be amortized over the useful lives of the underlying assets. In assessing the realizability of deferred tax assets during the year ended December 31, 2025, management determined that it was more likely than not that the deferred tax assets will not be realized.
Provision for Income Taxes
Brilliant Earth Group, Inc.'s income tax expense was $9.6 million and $0.2 million for the years ended December 31, 2025 and 2024, respectively. Brilliant Earth Group, Inc. had no business transactions or activities, and accordingly, no amounts related to income taxes were incurred by the Company.
Total Company earnings are earned in the United States and used to compute income taxes as follows (in thousands):
December 31, | |||||||||||
2025 | 2024 | ||||||||||
Pre-tax earnings of the Company | $ | 3,241 | $ | 4,154 | |||||||
Loss (earnings) allocable to NCI (not allocable to the Company) | 2,765 | (3,453) | |||||||||
Pre-tax earnings of Brilliant Earth Group, Inc. | 6,006 | 701 | |||||||||
Income tax expense of Brilliant Earth Group, Inc. | (9,641) | (160) | |||||||||
After tax (loss) earnings of Brilliant Earth Group, Inc. | $ | (3,635) | $ | 541 | |||||||
The components of the benefit (expense) from income taxes are as follows (in thousands):
December 31, | |||||||||||
2025 | 2024 | ||||||||||
Current tax benefit (expense) | |||||||||||
Federal | $ | — | $ | — | |||||||
State | 6 | (32) | |||||||||
Total current income tax benefit (expense) | 6 | (32) | |||||||||
Deferred tax (expense) benefit | |||||||||||
Federal | (7,966) | 83 | |||||||||
State | (1,681) | (211) | |||||||||
Total deferred income tax expense | (9,647) | (128) | |||||||||
Total income tax expense | $ | (9,641) | $ | (160) | |||||||
The Company adopted new income tax disclosure guidance for the year ended December 31, 2025, which required disaggregated information about the effective tax rate reconciliation. The Company has elected to apply the amendments retrospectively to the prior year presented in the financial statements. Accordingly, certain prior-year amounts in the rate reconciliation have been reclassified to conform to the current year's presentation. The reconciliation of the expected federal statutory rate of 21.0% to the effective rate is as follows (in thousands):
December 31, | |||||||||||||||||||||||
2025 | 2024 | ||||||||||||||||||||||
Tax effect | Rate | Tax effect | Rate | ||||||||||||||||||||
Brilliant Earth Group, Inc. expected tax expense at statutory rate | $ | (681) | 21.0% | $ | (872) | 21.0% | |||||||||||||||||
State & local income taxes, net of federal income tax effect(1) | (1,674) | 51.7% | (244) | 5.9% | |||||||||||||||||||
Changes in valuation allowance | (4,915) | 151.6% | — | —% | |||||||||||||||||||
Nontaxable or nondeductible items | |||||||||||||||||||||||
Gain on TRA liability adjustment | 1,639 | (50.6)% | — | —% | |||||||||||||||||||
Other adjustments: | |||||||||||||||||||||||
Non-Controlling interest | (579) | 17.9% | 725 | (17.5)% | |||||||||||||||||||
Outside basis differences | $ | (3,442) | 106.2% | $ | 175 | (4.2)% | |||||||||||||||||
Other | 11 | (0.3)% | 56 | (1.3)% | |||||||||||||||||||
Effective income tax expense and rate | $ | (9,641) | 297.5% | $ | (160) | 3.9% | |||||||||||||||||
(1) The states that contribute to the majority (greater than 50%) of the tax effect in this category include California, Illinois, Massachusetts, and New York.
The components of deferred tax assets are as follows (in thousands):
December 31, | |||||||||||
2025 | 2024 | ||||||||||
Deferred tax assets | |||||||||||
Outside basis difference in investment | $ | 4,149 | $ | 8,386 | |||||||
Net operating loss carryforwards | 1,741 | 1,250 | |||||||||
Total gross deferred tax assets | 5,890 | 9,636 | |||||||||
Valuation allowance | (5,890) | — | |||||||||
Net deferred tax asset | $ | — | $ | 9,636 | |||||||
The Company recognizes deferred tax assets to the extent it believes, based on available evidence, that it is more likely than not that they will be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and recent results of operations. For the year ended December 31, 2025, the Company entered into a three-year cumulative loss position and determined that it would not be able to generate sufficient taxable income to utilize its deferred tax assets. Based on this negative evidence, the Company concluded it was more likely than not that its deferred tax assets would not be realized, and accordingly, recorded a full valuation allowance. For the year ended December 31, 2024, the Company evaluated the likelihood it would realize its deferred tax assets and determined the probability to be more likely than not, and accordingly, no valuation allowance was recognized.
As of December 31, 2025, the Company has total federal net operating loss carryforwards (“NOLs”) of $6.9 million that have no expiration date. The Company also has total state NOLs of $6.9 million that begin to expire in 2036. Management believes on a more likely than not basis that the Company will not be able to realize the tax benefit of its NOLs carryforwards.
Utilization of net operating losses, credit carryforwards, and certain deductions may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The tax benefits related to future utilization of federal and state net operating losses, tax credit carryforwards, and other deferred tax assets may be limited or lost if cumulative changes in ownership exceeds 50% within any three-year period. Additional limitations on the use of these tax attributes could occur in the event of possible disputes arising in examinations from various taxing authorities.
Uncertain Tax Positions
The Company follows the provisions of GAAP relating to uncertainty in income taxes as it prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of uncertain tax positions that have been taken or expected to be taken on a tax return. No liability related to uncertain tax positions is recorded in the consolidated financial statements.
As of December 31, 2025, the Company had not incurred or recorded any penalties or interest related to income taxes in the consolidated statements of operations. Additionally, the Company did not record any uncertain tax positions on the consolidated balance sheets as management concluded that no such positions existed as of December 31, 2025.
The Company is subject to examination for the years ended December 31, 2025, 2024, 2023, and 2022. The Company is not currently subject to income tax audits in any U.S. or state jurisdictions for any tax year.
Tax Receivable Agreement
As each of the Continuing Equity Owners elect to convert their LLC Interests into Class A common stock or Class D common stock, as applicable, Brilliant Earth Group, Inc. will succeed to their aggregate historical tax basis which will create a net tax benefit to the Company. These tax benefits are expected to be amortized over 15 years pursuant to Sections 743(b) and 197 of the Code. The Company will only recognize a deferred tax asset for financial reporting purposes when it is more likely than not that the tax benefit will be realized.
In addition, as part of the IPO, the Company entered into a TRA with the Continuing Equity Owners to pay 85% of the tax savings from the tax basis adjustment to them as such savings are realized. Amounts payable under the TRA are contingent upon, among other things, generation of sufficient future taxable income during the term of the TRA. The amounts to be recorded for both the deferred tax assets and the liability for our obligations under the TRA will be estimated at the time of any purchase or redemption as a reduction to shareholders’ equity. The effect of subsequent changes in enacted tax rates will be included in net income. In connection with the Company concluding it was more likely than not that its deferred tax assets would not be realized and a full valuation allowance for its deferred tax assets was required, it was also determined a TRA liability was not probable at the current time. As a result, the Company reduced the TRA liability to zero and recognized a gain on TRA liability adjustment of $7.8 million in the Company's consolidated statement of operations for the year ended December 31, 2025.
One Big Beautiful Bill Act
In July, 2025, the “One Big Beautiful Bill Act” (the “Act”) was enacted into law. Among other provisions, the Act includes permanently extending and modifying certain expiring provisions of the 2017 Tax Cuts and Jobs Act and immediate expensing of domestic research and development expenses. The impacts of these provisions did not have a material impact on our consolidated financial statements or annual effective tax rate for 2025. However, we will continue to evaluate the effects of the Act on our consolidated financial statements and annual effective tax rate in the future.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 17, 2026 | Showing above |
| 2024 | Mar 13, 2025 | |
| 2023 | Mar 28, 2024 | |
| 2022 | Mar 21, 2023 | |
| 2021 | Mar 22, 2022 | |
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.