Keros Therapeutics, Inc.KROS
Keros Therapeutics, Inc. Income Taxes Disclosure
INCOME TAXES
Loss before income taxes for the years ended December 31, 2025 and 2024 consisted of the following (in thousands):
| YEAR ENDED DECEMBER 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| United States | $ | 74,804 | $ | (189,315) | |||||||
| Foreign | 17,093 | 2,262 | |||||||||
Income (loss) before income taxes | $ | 91,897 | $ | (187,053) | |||||||
The components of the provision for income taxes for the years ended December 31, 2025 and 2024 consisted of the following (in thousands):
| YEAR ENDED DECEMBER 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Current income tax provision: | |||||||||||
| Federal | $ | — | $ | — | |||||||
| State | — | — | |||||||||
| Foreign | 4,883 | 300 | |||||||||
Total current income tax provision | $ | 4,883 | $ | 300 | |||||||
Total deferred income tax provision | $ | — | $ | — | |||||||
Total income tax provision | $ | 4,883 | $ | 300 | |||||||
The following is a reconciliation of the Company’s U.S. federal statutory income tax rate to the Company’s effective income tax rate for the years ended December 31, 2025 in accordance with the guidance in the ASU No. 2023-09, which the Company has elected to prospectively adopt:
| YEAR ENDED DECEMBER 31, | |||||||||||
| 2025 | |||||||||||
| U.S Federal statutory tax rate | $ | 19,298 | 21.0 | % | |||||||
| State and local income tax, net of federal income tax effect2 | 734 | 0.8 | |||||||||
| Foreign tax effects | |||||||||||
| Australia | |||||||||||
| Difference between local tax rare and U.S. federal statutory tax rate | 1,538 | 1.7 | |||||||||
| Other | (245) | (0.3) | |||||||||
| Effect of changes in taw laws or rates enacted in the current period | — | — | |||||||||
| Effect of cross-border tax laws | — | — | |||||||||
| Tax credits | |||||||||||
| Research and development tax credits | 13,664 | 14.9 | |||||||||
| Changes in valuation allowances | (33,331) | (36.3) | |||||||||
| Nontaxable or nondeductible items | |||||||||||
| Nondeductible executive compensation | 5,048 | 5.5 | |||||||||
| Stock compensation | 1,263 | 1.4 | |||||||||
| Other | 6 | — | |||||||||
| Changes in unrecognized tax benefits | (2,784) | (3.0) | |||||||||
| Other | (308) | (0.4) | |||||||||
| Effective tax rate | $ | 4,883 | 5.3 | % | |||||||
The following is a reconciliation of the Company’s U.S. federal statutory income tax rate to the Company’s effective income tax rate for the year ended December 31, 2024 prior to adoption of ASU No. 2023-09:
| YEAR ENDED DECEMBER 31, | |||||
| 2024 | |||||
| Income at U.S. statutory rate | 21.0 | % | |||
| State taxes | 8.8 | ||||
| Stock compensation | (0.6) | ||||
| Other permanent differences | (1.3) | ||||
| Research and development credits | 1.2 | ||||
| Impact of foreign operations | (0.1) | ||||
| Foreign withholding taxes | (0.2) | ||||
| Other | (3.2) | ||||
| Tax credits | 1.2 | ||||
| Change in valuation allowance | (27.0) | ||||
| Effective tax rate | (0.2) | % | |||
The net deferred income tax asset balance as of December 31, 2025 and 2024 related to the following (in thousands):
| YEAR ENDED DECEMBER 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net operating loss carryforwards | $ | 35,141 | $ | 45,084 | |||||||
| Research and development tax credits | 409 | 16,184 | |||||||||
| Capitalized research and development expenses | 53,477 | 78,413 | |||||||||
| Stock-based compensation | 7,667 | 7,558 | |||||||||
| Operating lease liability | 4,620 | 5,068 | |||||||||
| Accrued expenses | 1,447 | 2,626 | |||||||||
| Other | 79 | 269 | |||||||||
| Total deferred tax assets | $ | 102,840 | $ | 155,202 | |||||||
| Valuation allowance | $ | (97,991) | $ | (150,037) | |||||||
| Net deferred tax assets | $ | 4,849 | $ | 5,165 | |||||||
| Deferred tax liability | |||||||||||
| Operating lease right-of-use asset | (4,608) | (5,165) | |||||||||
| Other | (241) | ||||||||||
Net deferred tax assets | $ | — | $ | — | |||||||
As of December 31, 2025, the Company had U.S. federal and state net operating loss (“NOL”) carryforwards of $159.1 million and $27.9 million, respectively. The federal NOLs can be carried forward indefinitely. The state NOL carryforwards begin to expire in 2039.
As of December 31, 2025, the Company had U.S. federal and state research and development tax credit carryforwards of $0.3 million and $0.1 million, respectively. The federal research and development tax credits expire in 2045. The state research and development tax credits expire in 2040.
Under the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the NOL and tax credit carryforwards are subject to review and potential adjustments by the Internal Revenue Services and state tax authorities. Under Section 382 of the Code (“Section 382”), certain substantial changes in the Company’s ownership, including the sale of the Company or significant changes in ownership due to sales of equity, may have limited, or may limit in the future, the amount of NOL carryforwards or tax credits which could be used annually to offset future taxable income. Based on a previous Section 382 analysis that the Company performed, the Company determined that on April 15, 2016 and April 13, 2020, Section 382 ownership changes and limitations had occurred. Based on such analysis, the Company determined that $0.3 million and $0.3 million of its federal and state NOL carryforwards, respectively, were limited by Section 382 and therefore were previously written off. The Company had updated its analyses under Section 382 through November 21, 2025, and determined that, in addition to the previous Section 382 ownership changes and limitations on April 15, 2016 and April 13, 2020, a Section 382 ownership change occurred on November 21, 2025. As a result of the November 21, 2025 Section 382
ownership change and limitation, $14.0 million of federal research and development tax credit carryforwards, $169.4 million of state NOL carryforwards and $5.9 million of state research and development tax credit carryforwards have been written off. Though subject to a Section 382 limitation, federal NOL carryforwards have not been written off since they can be carried forward indefinitely. The remaining unused carryforwards remain available for future periods. The Company may also experience ownership changes in the future as a result of subsequent shifts in the Company’s stock ownership, some of which may be outside the Company’s control. As a result, its ability to use its pre-change NOLs or tax credits to offset U.S. federal taxable income or tax may be subject to limitations, which could potentially result in increased future tax liability. 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.
Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of NOLs and research and development credits. Under the applicable accounting standards, management has considered the Company’s history of losses and concluded that it is more likely than not that the Company will not recognize the benefits of federal and state deferred tax assets. Accordingly, a full valuation allowance was maintained as of December 31, 2025 and 2024. A decrease in the Company’s valuation allowance was recorded in 2025 in the amount of $52.0 million primarily due to the reduction of net deferred tax assets related to capitalized research and development expenses, research and development tax credits and net operating loss carryforwards. An increase in the Company’s valuation allowance was recorded in 2024 in the amount of $50.6 million, primarily due to the generation of additional net deferred tax assets related to capitalized research and development expenses, net operating loss carryforwards and research and development tax credits.
The Tax Cuts and Jobs Act resulted in significant changes to the treatment of research and development (“R&D”) expenditures under Section 174. For tax years beginning after December 31, 2021, taxpayers are required to capitalize and amortize all R&D expenditures that are paid or incurred in connection with their trade or business. Specifically, costs for U.S.-based R&D activities must be amortized over five years and costs for foreign R&D activities must be amortized over 15 years – both using a midyear convention.
On July 4, 2025, President Trump signed H.R. 1, the One Big Beautiful Bill Act into law. The legislation included several changes to the Internal Revenue Code. These changes are generally effective for tax years beginning after December 31, 2025 except for changes related to the expensing of U.S.-based R&D expenditures which was retroactively effective and available for tax years beginning after December 31, 2024 and the reinstatement of 100% bonus depreciation for qualified assets/property placed in service after January 19, 2025. The changes that were retroactively effective were reflected in the year ended December 31, 2025.
The calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the many states in which it operates or does business in. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.
The Company records uncertain tax positions as liabilities in accordance with ASC 740 and adjusts these liabilities when its judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company’s current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.
As of December 31, 2024, the Company had certain gross unrecognized tax benefits related to income tax reserves primarily related to federal and state research credit carryforwards of $3.1 million, of which $2.0 million relate to positions taken in prior years and $1.1 million relate to current year positions. As of December 31, 2025, the Company had certain gross unrecognized tax benefits related to income tax reserves primarily related to federal research credit carryforwards of $0.1 million, which relate to current year positions. The Company does not have any other material gross unrecognized tax benefits related to income tax reserves. The Company does not expect any of its unrecognized tax benefits related to income tax reserves, if recognized, to impact its effective tax rate due to full valuation allowance in the United States.
The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. As of December 31, 2025 and 2024, the Company had no interest or penalties related to unrecognized tax benefits. For the year ended December 31, 2025, the Company paid $7.2 million of total income taxes, $4.9 million related to Australia and $2.3 million related to U.S. federal income taxes. For the year ended December 31, 2024, the Company made zero payments for income taxes.
The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to income tax examination by federal, state and foreign jurisdictions, where applicable. The Company recently closed an income tax examination with the state of Massachusetts for the tax years ended December 31, 2021 and 2022, with no material impact to the Company's financial statements. The Company’s tax years are still open under statute for income tax examination by the Internal Revenue Service (“IRS”) from December 31, 2022 to the present. There are currently no pending income tax examinations with the IRS. To the extent the Company has tax attribute
carryforwards, the tax years in which the tax attribute was generated may still be adjusted upon examination by the Internal Revenue Service, state and foreign tax authorities to the extent utilized in a future period.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 4, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Mar 3, 2023 | |
| 2021 | Mar 9, 2022 | |
| 2020 | Mar 25, 2021 | |
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.