CARLSMED, INC. Income Taxes Disclosure
11. Income Taxes
The Company had no federal or state income tax expense nor any payments for federal or state income taxes for the years ended December 31, 2025 and 2024. The Company's pretax loss for 2025 and 2024 was solely due to domestic operations.
A reconciliation of income tax expense to the amount computed by applying the statutory federal income tax rate to the loss from operations for the years ended December 31, 2025 and 2024 are summarized as follows:
(in thousands, except for percentages) |
|
For the Year Ended |
|
For the Year Ended |
||||||||||||||
|
$ |
(6,223 |
) |
|
|
21.0 |
|
% |
|
$ |
(5,094 |
) |
|
|
21.0 |
|
% |
|
State and local income tax benefit, net of federal income tax effect* |
|
|
(60 |
) |
|
|
0.2 |
|
|
|
|
(50 |
) |
|
|
0.2 |
|
|
Tax credits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development tax credit |
|
|
(460 |
) |
|
|
1.6 |
|
|
|
|
(338 |
) |
|
|
1.4 |
|
|
Changes in valuation allowance |
|
|
6,190 |
|
|
|
(20.9 |
) |
|
|
|
5,245 |
|
|
|
(21.6 |
) |
|
Nontaxable or nondeductible items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Permanent items |
|
|
189 |
|
|
|
(0.6 |
) |
|
|
|
89 |
|
|
|
(0.4 |
) |
|
Stock-based compensation |
|
|
117 |
|
|
|
(0.4 |
) |
|
|
|
25 |
|
|
|
(0.1 |
) |
|
Officer's compensation |
|
|
55 |
|
|
|
(0.2 |
) |
|
|
|
— |
|
|
|
— |
|
|
Changes in unrecognized tax benefits |
|
|
175 |
|
|
|
(0.6 |
) |
|
|
|
137 |
|
|
|
(0.6 |
) |
|
Other, net |
|
|
17 |
|
|
|
(0.1 |
) |
|
|
|
(14 |
) |
|
|
0.1 |
|
|
Provision for income taxes |
|
$ |
— |
|
|
|
0.0 |
|
% |
|
$ |
— |
|
|
|
0.0 |
|
% |
* State taxes in California made up the majority (greater than 50%) of the tax effect in this category for 2025 and 2024.
The Company’s “net deferred tax assets” are comprised of the following as of December 31, 2025 and 2024:
(in thousands) |
|
|
|
|
|
|
||
Deferred tax assets: |
|
As of December 31, 2025 |
|
|
As of December 31, 2024 |
|
||
Net operating loss carryforwards |
|
$ |
17,902 |
|
|
$ |
10,934 |
|
Capitalized R&D expenses |
|
|
4,232 |
|
|
|
5,143 |
|
Lease liability |
|
|
528 |
|
|
|
434 |
|
Accrued expenses |
|
|
1,117 |
|
|
|
406 |
|
R&D credits and other tax credits |
|
|
1,548 |
|
|
|
1,020 |
|
Inventory |
|
|
849 |
|
|
|
438 |
|
Stock-based compensation |
|
|
215 |
|
|
|
46 |
|
Other |
|
|
448 |
|
|
|
315 |
|
Gross deferred tax assets |
|
$ |
26,839 |
|
|
$ |
18,736 |
|
Less: valuation allowance |
|
|
(26,369 |
) |
|
|
(18,332 |
) |
Net deferred tax assets |
|
$ |
470 |
|
|
$ |
404 |
|
|
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
||
Right-of-use asset |
|
|
(466 |
) |
|
|
(404 |
) |
Other |
|
|
(4 |
) |
|
|
— |
|
Net deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize existing deferred tax assets. Based on the weight of evidence, including a history of operating losses, management has determined that it is more likely than not that the Company’s net deferred tax assets will not be realized. Accordingly, a valuation allowance has been established by the Company to fully offset these net deferred tax assets. The valuation allowance increased by $8.0 million and $6.1 million during the years ended December 31, 2025 and 2024, respectively.
At December 31, 2025, the Company had federal and state net operating loss (“NOL”) carryforwards of approximately $69.0 million and $57.5 million, respectively. The federal losses will carry forward indefinitely and can be used to offset up to 80% of future annual taxable income. State loss carryforwards of approximately $10.5 million will carry forward indefinitely. State loss carryforwards of approximately $47.0 million begin expiring in 2032, unless previously utilized. The Company also has federal and state research and development (“R&D”) credit carryforwards totaling $1.3 million and $1.0 million, respectively. The federal credits begin to expire in 2039, unless previously utilized, and the state credits do not expire.
The Company’s NOL and credit carryforwards may be subject to a substantial annual limitation pursuant to Internal Revenue Code (“IRC”) Sections 382 and 383 in connection with future utilization and potential ownership changes of the Company. These ownership changes may limit the amount of NOL and credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by the IRC results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain stockholders or public groups. As of December 31, 2025, the Company has not completed a study to assess whether an ownership change within the meaning of IRC Section 382 has occurred. If a change in ownership occurred which resulted in a limitation on the amount of NOLs and credits which may be available to offset future taxable income, the related deferred tax asset would be reduced or eliminated with a corresponding reduction in the valuation allowance.
As of December 31, 2025, and 2024, the Company had unrecognized tax benefits of $0.6 million and $0.4 million, respectively. Due to the existence of the valuation allowance, future changes in unrecognized tax benefits would not have any effect on the Company’s effective tax rate.
The Company recognizes interest and penalties related to income tax matters in income tax expense. No such costs were recorded during the years ended December 31, 2025 and 2024, and the Company had no accrued interest or penalties recorded as of December 31, 2025 or 2024.
Generally, the Company’s federal and state income tax returns since inception in 2018 are subject to examination by tax authorities. The Company is not under examination by any tax jurisdiction.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law, which enacts significant changes to U.S. tax and related laws. Some of the provisions of the new tax law affecting corporations include, but are not limited to, expensing of domestic research expenses, increasing the limit of the deduction of interest expense deduction to thirty percent of EBITDA, and one hundred percent bonus depreciation on eligible property acquired after January 19, 2025. The provisions of the OBBBA became effective for the Company during the third quarter 2025. The new tax law did not have a material impact on the Company's current or future effective rate for income taxes or cash taxes paid.
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.