Fortinet, Inc.FTNT
Fortinet, Inc. Income Taxes Disclosure
INCOME TAXES
Income before income taxes and loss from equity method investments consisted of (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | 2,106.8 | $ | 1,929.2 | $ | 1,195.0 | |||||||||||
| Foreign | 175.4 | 129.3 | 138.7 | ||||||||||||||
Total income before income taxes and loss from equity method investments | $ | 2,282.2 | $ | 2,058.5 | $ | 1,333.7 | |||||||||||
The provision for (benefit from) income taxes consisted of (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 294.6 | $ | 444.2 | $ | 398.5 | |||||||||||
| State | 21.9 | 25.8 | 27.7 | ||||||||||||||
| Foreign | 54.3 | 36.8 | 24.3 | ||||||||||||||
| Total current | $ | 370.8 | $ | 506.8 | $ | 450.5 | |||||||||||
| Deferred: | |||||||||||||||||
| Federal | $ | 56.8 | $ | (210.7) | $ | (281.1) | |||||||||||
| State | 11.9 | (12.4) | (18.9) | ||||||||||||||
| Foreign | (0.4) | 0.2 | (6.7) | ||||||||||||||
| Total deferred | 68.3 | (222.9) | (306.7) | ||||||||||||||
| Provision for income taxes | $ | 439.1 | $ | 283.9 | $ | 143.8 | |||||||||||
The foreign tax provision included the tax impacts from U.S. GAAP to local tax return book to tax differences that create a permanent addback including but not limited to stock compensation, meals and entertainment, and settlement of prior year tax audits with foreign jurisdiction adjustments.
We adopted ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” on a prospective basis beginning with the year ended December 31, 2025. The following table reconciles the U.S. federal statutory tax amount and rate to our actual global effective amount and rate for the year ended December 31, 2025 (in millions, except percentages):
Year Ended December 31, 2025 | |||||||||||
Amount | % | ||||||||||
| U.S. Federal Statutory Tax Rate | $ | 479.3 | 21.0 | % | |||||||
State and Local Income Taxes, Net of Federal Income Tax Effect (1) | 26.4 | 1.2 | % | ||||||||
Foreign Tax Effects (2) | 82.0 | 3.6 | % | ||||||||
| Effect of Changes in Tax Laws or Rates Enacted in the Current Period | — | — | % | ||||||||
| Effect of Cross-Border Tax Laws | |||||||||||
Foreign-Derived Intangible Income deduction | (84.3) | (3.7) | % | ||||||||
Branch income | 37.8 | 1.7 | % | ||||||||
| Other | 1.5 | 0.1 | % | ||||||||
| Tax Credits | |||||||||||
Foreign tax credit | (101.8) | (4.5) | % | ||||||||
| Other | (15.4) | (0.7) | % | ||||||||
| Changes in Valuation Allowances | — | — | % | ||||||||
| Nontaxable or Nondeductible Items | |||||||||||
| Stock-based compensation expense | 32.5 | 1.4 | % | ||||||||
Excess tax benefit from stock-based compensation | (60.9) | (2.7) | % | ||||||||
| Other | (4.4) | (0.2) | % | ||||||||
| Changes in Unrecognized Tax Benefits | 16.5 | 0.7 | % | ||||||||
| Other Adjustments | |||||||||||
Acquisition-related effects | 31.2 | 1.4 | % | ||||||||
| Other | (1.3) | (0.1) | % | ||||||||
Effective Tax Rate | $ | 439.1 | 19.2 | % | |||||||
(1) In 2025, State and local income taxes in California, Illinois, New Jersey, New York and Pennsylvania made up the majority (greater than 50%) of the tax effect in this category. | |||||||||||
(2) Presented on an aggregated basis as no individual foreign jurisdiction and no individual reconciling item by nature within any jurisdiction met the disaggregation threshold. | |||||||||||
The following represents the required disclosures prior to our adoption of ASU 2023-09 and reconciles the U.S. federal statutory income tax rate to the actual global effective tax rate for the years ended December 31, 2024 and 2023 (in millions):
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Tax at federal statutory tax rate | $ | 432.3 | $ | 280.1 | |||||||
| Foreign income taxed at different rates | 29.8 | 27.0 | |||||||||
| Foreign withholding taxes | 58.0 | 35.1 | |||||||||
| Stock-based compensation expense | (23.6) | (54.3) | |||||||||
| Foreign tax credit | (79.5) | (72.6) | |||||||||
| State taxes—net of federal benefit | 1.1 | 5.0 | |||||||||
| Research and development credit | (13.9) | (14.0) | |||||||||
| Valuation allowance | 7.5 | (67.7) | |||||||||
| Impact of the 2017 Tax Cuts and Jobs Act: | |||||||||||
Tax effect of a law change | — | (20.8) | |||||||||
Foreign-Derived Intangible Income | (111.5) | (89.5) | |||||||||
Adjustment to prior year’s FDII | — | 92.8 | |||||||||
| Other | (16.3) | 22.7 | |||||||||
| Total provision for income taxes | $ | 283.9 | $ | 143.8 | |||||||
On January 4, 2022, the U.S. Treasury published another tranche of final regulations regarding the foreign tax credit. These final regulations impose new requirements that a foreign tax must meet in order to be creditable against U.S. income taxes, and generally apply to tax years beginning on or after December 28, 2021. On July 26, 2022, the U.S. Treasury released corrections to the final regulations. On July 21, 2023, the IRS released a notice that suspended the application of significant portions of the final regulations regarding the foreign tax credit for tax years 2022 and 2023. The notice released in July 2023 favorably impacted our ability to claim foreign tax credits in the United States for certain taxes imposed by certain foreign jurisdictions. On December 11, 2023, the IRS released a notice that extended the suspension of significant portions of the final regulations beyond December 31, 2023, until further guidance is issued.
In December 2021, the Organisation for Economic Co-operation and Development enacted model rules for a new global minimum tax framework (“BEPS Pillar Two”), and various governments around the world have enacted, or are in the process of enacting, legislation on this. For the tax year 2025, BEPS Pillar Two has no impact to our effective tax rate or cash flows. We will continue to evaluate the impact of these tax law changes for future periods.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets as of the years ended are presented below (in millions):
| December 31, 2025 | December 31, 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| General business credit carryforward | $ | 31.6 | $ | 31.7 | |||||||
| Deferred revenue | 694.0 | 650.8 | |||||||||
| Reserves and accruals | 101.7 | 139.0 | |||||||||
Net operating loss and capital loss carryforwards | 291.9 | 227.7 | |||||||||
| Stock-based compensation expense | 33.1 | 27.0 | |||||||||
| Depreciation and amortization | 9.4 | 12.0 | |||||||||
| Capitalized research expenditures | 394.5 | 437.7 | |||||||||
| Operating lease liabilities | 14.3 | 17.4 | |||||||||
| Total deferred tax assets | 1,570.5 | 1,543.3 | |||||||||
| Less: Valuation allowance | (71.8) | (40.7) | |||||||||
| Deferred tax assets, net of valuation allowance | 1,498.7 | 1,502.6 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Deferred contract costs | (162.3) | (140.2) | |||||||||
| Operating lease ROU assets | (14.0) | (15.8) | |||||||||
| Acquired intangibles | (13.2) | (14.6) | |||||||||
| Total deferred tax liabilities | (189.5) | (170.6) | |||||||||
| Net deferred tax assets | $ | 1,309.2 | $ | 1,332.0 | |||||||
In assessing the realizability of deferred tax assets, we considered whether it is more likely than not that some portion or all of our deferred tax assets will be realized. This realization is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We concluded that it is more likely than not that we will be able to realize the benefits of our deferred tax assets in the future except for our California research and development credits carryforward, certain impairment losses in business investments and certain tax attributes from business acquisitions. As of December 31, 2025, we had a valuation allowance of $71.8 million against those items.
As of December 31, 2025, our federal and California net operating loss carryforwards for income tax purposes were $1.22 billion and $32.7 million, respectively. All the net operating loss carryforwards were from acquisitions which were limited by Section 382 of the Internal Revenue Code. If not utilized, the federal net operating loss carryforwards will begin to expire in 2028, and California net operating loss carryforwards will begin to expire in 2034.
As of December 31, 2025, we had state tax credit carryforwards of $60.0 million. The state credits can be carried forward indefinitely.
The aggregate changes in the balance of unrecognized tax benefits are (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Unrecognized tax benefits, beginning of year | $ | 75.9 | $ | 65.8 | $ | 67.4 | |||||||||||
| Gross increases for tax positions related to the current year | 13.2 | 14.7 | 11.4 | ||||||||||||||
| Gross decreases for tax positions related to the current year | — | — | — | ||||||||||||||
| Gross increases for tax positions related to the prior year | 3.1 | 0.2 | 1.0 | ||||||||||||||
| Gross decreases for tax positions related to prior year | — | (2.3) | (4.0) | ||||||||||||||
| Gross decreases for tax positions related to prior year audit settlements | (1.1) | (1.8) | — | ||||||||||||||
| Gross decreases for tax positions related to expiration of statute of limitations | (0.7) | (0.7) | (10.0) | ||||||||||||||
| Unrecognized tax benefits, end of year | $ | 90.4 | $ | 75.9 | $ | 65.8 | |||||||||||
As of December 31, 2025, we had $90.4 million of unrecognized tax benefits, of which, if recognized, $74.1 million would favorably affect our effective tax rate. Our gross unrecognized tax benefits increased approximately $14.5 million during the year ended December 31, 2025. The net increase was primarily due to the normal buildup of reserves related to the Federal Research & Development credit and transfer pricing. Our policy is to include accrued interest and penalties related to uncertain tax benefits in income tax expense. As of December 31, 2025, 2024 and 2023, accrued interest and penalties were $12.5 million, $8.8 million and $6.4 million, respectively.
We file income tax returns in the U.S. federal jurisdiction and in various U.S. state and foreign jurisdictions. Generally, we are no longer subject to examination by U.S. federal income tax authorities for tax years prior to 2020 and by U.S. state and foreign tax authorities in our significant jurisdictions for tax years prior to 2016. We currently have ongoing tax audits in the United Kingdom, Canada, Germany and several other foreign jurisdictions. The focus of these audits is the inter-company profit allocation.
The Act makes permanent certain elements of the Tax Cuts and Jobs Act, including immediate expensing of U.S. research and development expenditures, immediate expensing of certain eligible assets, and various modifications to the international tax framework. The income tax effects of the Act have been recognized in our provision for income taxes as of December 31, 2025. As a result of the Act, our income tax liability in 2025 decreased by $120.0 million and our GAAP effective tax rate for 2025 increased by one percentage point.
We adopted ASU 2023-09 on a prospective basis for the year ended December 31, 2025 and have included the following table as a result of our adoption, which presents income taxes paid (net of refunds received) for the year ended December 31, 2025 (in millions):
Year Ended December 31, 2025 | |||||
US federal | $ | 294.8 | |||
US state and local (1) | 34.5 | ||||
Foreign (1) | 122.2 | ||||
Total | $ | 451.5 | |||
(1) Jurisdiction below the disaggregation threshold | |||||
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 21, 2025 | |
| 2023 | Feb 26, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 19, 2021 | |
| 2019 | Feb 26, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Feb 26, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Feb 26, 2016 | |
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.