Hercules Capital, Inc.HTGC
Hercules Capital, Inc. Income Taxes Disclosure
Income Taxes
The determination of taxable income pursuant to U.S. federal income tax regulations differs from U.S. GAAP. As a result, permanent differences are reclassified among capital accounts in the financial statements to reflect their appropriate tax character.
During the years ended December 31, 2025, 2024 and 2023, the Company reclassified accumulated net realized gains (losses) to additional paid-in capital for book purposes primarily related to net realized gains from portfolio companies which are held in taxable subsidiaries and are not consolidated with the Company for income tax purposes, as follows:
(in millions) | Year Ended December 31, | ||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Reclassified accumulated net realized gains (losses) | $ | 0.5 | $ | (1.3) | $ | 0.8 | |||||||||||
During the years ended December 31, 2025, 2024 and 2023, the Company reclassified amounts from undistributed ordinary income or accumulated realized gains (losses) to additional paid-in capital for book purposes, as follows:
| (in thousands) | Year Ended December 31, | ||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Undistributed net investment income (distributions in excess of investment income) | $ | (20,516) | $ | (25,064) | $ | (18,396) | |||||||||||
| Accumulated realized gains (losses) | 28,273 | 23,249 | 39,317 | ||||||||||||||
| Additional paid-in capital | $ | (7,757) | $ | 1,815 | $ | (20,921) | |||||||||||
For income tax purposes, distributions paid to stockholders are reported as ordinary income, capital gains, return of capital, or a combination thereof. The tax character of distributions paid are as follows for each of the years ended:
| (in millions) | Year Ended December 31, | ||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Ordinary income | $ | 321.5 | $ | 286.1 | $ | 275.5 | |||||||||||
Capital gains | 11.1 | 23.4 | — | ||||||||||||||
As of December 31, 2025, 2024 and 2023, the components of distributable earnings on a tax basis detailed below differ from the amounts reflected in the Company’s Consolidated Statements of Assets and Liabilities by temporary book or tax differences primarily arising from the treatment of loan related yield enhancements.
| (in thousands) | Year Ended December 31, | ||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Accumulated capital gains | $ | (6,521) | $ | 11,137 | $ | (8,190) | |||||||||||
| Other temporary differences | (26,657) | (25,107) | (18,609) | ||||||||||||||
| Undistributed ordinary income | 149,894 | 152,436 | 133,783 | ||||||||||||||
| Unrealized appreciation (depreciation) | (15,565) | (49,546) | 33,029 | ||||||||||||||
| Components of distributable earnings | $ | 101,151 | $ | 88,920 | $ | 140,013 | |||||||||||
Taxable income and taxable net realized gains (losses) for the year ended December 31, 2025, 2024 and 2023 appears as follows:
(in millions, except per share data) | Year Ended December 31, | ||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Taxable income | $ | 318.90 | $ | 305.00 | $ | 283.00 | |||||||||||
Taxable income per share | $ | 1.80 | $ | 1.89 | $ | 1.96 | |||||||||||
Taxable net realized gains (losses) | $ | (6.5) | $ | 34.5 | $ | (8.2) | |||||||||||
Taxable net realized gains (losses) per share | $ | (0.04) | $ | 0.21 | $ | (0.06) | |||||||||||
| Weighted average shares outstanding | 177.4 | 161.1 | 144.1 | ||||||||||||||
The aggregate gross unrealized appreciation and depreciation of the Company's investment over cost for U.S. federal income tax purposes appears as follows:
(in millions) | Year Ended December 31, | ||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Aggregate gross unrealized appreciation | $ | 107.0 | $ | 108.4 | $ | 118.3 | |||||||||||
Aggregate gross unrealized depreciation | 109.4 | 156.5 | 115.9 | ||||||||||||||
Net unrealized appreciation (depreciation) over cost for U.S. federal income tax purposes | (2.4) | (48.1) | 2.4 | ||||||||||||||
| Aggregate cost of securities for U.S. federal income tax purposes (in billions) | 4.5 | 3.7 | 3.2 | ||||||||||||||
Cash paid for income taxes (net of refunds) consisted of the following:
| (in thousands) | Year Ended December 31, | |||||||
| 2025 | ||||||||
Federal | ||||||||
| Excise Tax | $ | 6,028 | ||||||
| Income Tax | 148 | |||||||
| Total Federal | $ | 6,176 | ||||||
| State | ||||||||
| Franchise Tax | 125 | |||||||
| Income Tax | 107 | |||||||
Total State | $ | 232 | ||||||
Foreign | ||||||||
| Value-Added Tax | — | |||||||
| Total Foreign | $ | — | ||||||
| Cash paid for income taxes (net of refunds) | $ | 6,408 | ||||||
For the year ended December 31, 2025, the Company paid approximately $6.4 million of income tax, including excise tax, and had $6.1 million of accrued, but unpaid tax expense as of December 31, 2025. For the year ended December 31, 2024, the Company paid approximately $5.3 million of income tax, including excise tax, and had $6.7 million of accrued, but unpaid tax expense as of December 31, 2024.
Additionally, the Company has taxable subsidiaries which hold certain portfolio investments in an effort to limit potential legal liability and/or comply with source-income type requirements contained in the RIC tax provisions of the Code. These taxable subsidiaries are consolidated for U.S. GAAP and the portfolio investments held by the taxable subsidiaries are included in the Company’s consolidated financial statements and are recorded at fair value. These taxable subsidiaries are not consolidated with the Company for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities as a result of their ownership of certain portfolio investments. Any income generated by these taxable subsidiaries generally would be subject to tax at normal U.S. federal tax rates based on its taxable income.
In accordance with ASC 740, the Company evaluates tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties, if any, related to unrecognized tax benefits as a component of provision for income taxes. Based on an analysis of the Company’s tax position, there are no uncertain tax positions that meet the recognition or measurement criteria. The Company is currently not undergoing any tax examinations. The Company does not anticipate any significant increase or decrease in unrecognized tax benefits for the next twelve months. The 2022 – 2024 federal tax years for the Company remain subject to examination by the Internal Revenue Service. The 2020 – 2024 state tax years for the Company remain subject to examination by the state taxing authorities.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 12, 2026 | Showing above |
| 2024 | Feb 13, 2025 | |
| 2023 | Feb 15, 2024 | |
| 2022 | Feb 16, 2023 | |
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.