Klaviyo, Inc.KVYO
Klaviyo, Inc. Income Taxes Disclosure
9. Income Taxes
The domestic and foreign components of loss before income taxes are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| United States | $ | (42,129) | $ | (54,059) | $ | (312,759) | |||||||||||
| Foreign | 11,611 | 10,379 | 5,718 | ||||||||||||||
| Loss before income taxes | $ | (30,518) | $ | (43,680) | $ | (307,041) | |||||||||||
The provision for income taxes contained the following components (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Current: | |||||||||||||||||
| Federal | $ | (277) | $ | 750 | $ | — | |||||||||||
| State | 237 | 211 | (26) | ||||||||||||||
| Foreign | 4,352 | 942 | 4,652 | ||||||||||||||
| 4,312 | 1,903 | 4,626 | |||||||||||||||
Deferred: | |||||||||||||||||
| Federal | (141) | — | — | ||||||||||||||
| State | (47) | — | — | ||||||||||||||
| Foreign | (2,874) | 559 | (3,434) | ||||||||||||||
| (3,062) | 559 | (3,434) | |||||||||||||||
| Provision for income taxes | $ | 1,250 | $ | 2,462 | $ | 1,192 | |||||||||||
The Company’s effective tax rates for the years ended December 31, 2025, 2024, and 2023 were less than the U.S. federal statutory income tax rate of 21.0%, primarily due to valuation allowance on the U.S. federal and state deferred tax assets. Effective January 1, 2025, the Company adopted ASU 2023-09, Improvements to Income Tax Disclosures, on a prospective basis. As a result of this adoption, the Company is providing the expanded quantitative rate reconciliation disclosures required by ASU 2023-09 for the year ended December 31, 2025 on a prospective basis.
Below is a tabular reconciliation pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 (in thousands, except percentages):
Year Ended December 31, 2025 | ||||||||||||||
Amount ($) | Percent | |||||||||||||
| U.S. federal taxes at statutory rate | $ | (6,412) | 21.0 | % | ||||||||||
State and local income tax, net of federal (national) income tax effect(1) | 190 | (0.6) | ||||||||||||
Foreign tax effects | ||||||||||||||
| United Kingdom | ||||||||||||||
| Stock Based Compensation | (701) | 2.3 | ||||||||||||
| Other | 128 | (0.4) | ||||||||||||
| Australia | ||||||||||||||
| Stock Based Compensation | (312) | 1.0 | ||||||||||||
| Other | 60 | (0.2) | ||||||||||||
| Other foreign jurisdictions | (3) | — | ||||||||||||
| Total | (828) | 2.7 | ||||||||||||
| Effect of changes in tax laws or rates enacted in the current period | ||||||||||||||
| Effect of cross-border tax laws | ||||||||||||||
| Tax credits | ||||||||||||||
| Federal R&D Credit | (15,562) | 51.0 | ||||||||||||
| Total | (15,562) | 51.0 | ||||||||||||
| Changes in valuation allowances | 195,140 | (639.1) | ||||||||||||
| Nontaxable or nondeductible items | ||||||||||||||
| Meals and Entertainment | 1,993 | (6.5) | ||||||||||||
| Stock Based Compensation | (170,121) | 557.2 | ||||||||||||
Prepaid marketing expense | (2,935) | 9.6 | ||||||||||||
| Other | (215) | 0.7 | ||||||||||||
| Total | (171,278) | 561.0 | ||||||||||||
| Changes in unrecognized tax benefits. | ||||||||||||||
Total | $ | 1,250 | (4.1) | % | ||||||||||
Below is a reconciliation of the statutory federal income tax expense and the Company's total income tax expense for the years ended December 31, 2024 and 2023:
Year Ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| U.S. federal taxes at statutory rate | 21.0 | % | 21.0 | % | ||||||||||
| State taxes, net of federal benefit | 7.6 | 4.3 | ||||||||||||
| Federal research and development credits | 48.3 | 3.8 | ||||||||||||
| State research and development credits | 20.2 | 0.9 | ||||||||||||
| Permanent items | (2.4) | (0.4) | ||||||||||||
| Stock-based compensation | 57.3 | 1.6 | ||||||||||||
| Foreign rate differential | 0.1 | — | ||||||||||||
| Non-deductible officers compensation | (32.2) | (2.3) | ||||||||||||
Prepaid marketing expense | 3.2 | 3.6 | ||||||||||||
| Other | (2.7) | — | ||||||||||||
| Change in valuation allowance | 126.0 | (32.9) | ||||||||||||
| Total | (5.6) | % | (0.4) | % | ||||||||||
Income taxes paid for the year ended December 31, 2024 were $4.7 million. As required by ASU 2023-09, the table below presents the amount of income taxes paid (in thousands, net of refunds received) for the year ended December 31, 2025, disaggregated by federal, state, and foreign jurisdictions.
| Year Ended December 31, | ||||||||
2025 | ||||||||
| Federal | $ | 939 | ||||||
| State | 578 | |||||||
| Foreign | ||||||||
UK | 1,819 | |||||||
| AUS | 3,160 | |||||||
Other | 40 | |||||||
Total | $ | 6,536 | ||||||
Deferred income taxes reflect the impact of carryforwards and temporary differences between the amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. The carryforwards and temporary differences that give rise to a significant portion of the Company’s deferred tax assets and liabilities as of December 31, 2025 and 2024 are as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 245,586 | $ | 76,714 | |||||||
| Research and development credits | 87,255 | 63,894 | |||||||||
| Stock-based compensation | 17,060 | 25,544 | |||||||||
| Lease liability | 29,558 | 13,146 | |||||||||
| Capitalized research and development | 154,483 | 105,266 | |||||||||
| Other | 10,622 | 7,582 | |||||||||
| Total deferred tax assets | 544,564 | 292,146 | |||||||||
| Deferred tax liabilities: | |||||||||||
Depreciation | (2,365) | (2,362) | |||||||||
| Deferred commissions | (13,659) | (9,818) | |||||||||
| Amortization | (8,163) | (4,579) | |||||||||
| ROU asset | (24,763) | (10,604) | |||||||||
| Prepaid marketing expense | (32,417) | (37,112) | |||||||||
| Total deferred tax liabilities | (81,367) | (64,475) | |||||||||
| Valuation allowance | (457,787) | (225,135) | |||||||||
Net deferred tax assets | $ | 5,410 | $ | 2,536 | |||||||
As of December 31, 2025 and 2024, the Company has federal net operating loss (“NOL”) carryforwards of $1.0 billion and $304.1 million, respectively, which can be carried forward indefinitely, and state net operating loss carryforwards of $618.5 million and $232.6 million, respectively, which expire at various dates beginning in 2027. As of December 31, 2025 and 2024, the Company has federal credit carryforwards of $59.5 million and $44.0 million, respectively, and state credit carryforwards of $35.1 million and $25.2 million, respectively, which are available to reduce future tax liabilities. If not utilized, the federal research and development credit will begin to expire in 2039 and the state research and development credit will begin to expire in 2026.
The Company may not be subject to an annual limitation on its NOL and research and development credit attributes as of December 31, 2025, but subsequent ownership changes may affect the limitation in future years.
The net change in the total valuation allowance for the year ended December 31, 2025 was an increase of $232.7 million, primarily as a result of the increase in research and development capitalization, federal research and development credits, and the generation of net operating losses. The net changes in the total valuation allowance for the year ended December 31, 2024 was an increase of $55.1 million, primarily as a result of the increase in research and development capitalization and federal research and development credits offset by the utilization of net operating losses.
Uncertain Tax Positions
A reconciliation of the gross unrecognized tax benefits consists of the following (in thousands):
| Year Ended December 31, | ||||||||||||||
2025 | 2024 | 2023 | ||||||||||||
Unrecognized tax benefits, beginning balance | $ | 1,334 | $ | — | $ | — | ||||||||
Gross increases for tax positions taken in prior years | 11 | 1,334 | — | |||||||||||
Unrecognized tax benefits, ending balance | $ | 1,345 | $ | 1,334 | $ | — | ||||||||
The unrecognized tax benefits as of December 31, 2025, if recognized, would not affect the effective income tax rate due to the valuation allowance that currently offsets the deferred tax assets.
The Company had no interest and penalties accrued related to uncertain tax positions as of December 31, 2025, 2024, and 2023.
The Company files income tax returns in the United States and in foreign jurisdictions. All periods since inception are subject to examination in most jurisdictions.
On July 4, 2025, tax reform legislation included in the One Big Beautiful Bill Act (the “OBBBA”) was enacted in the United States. The OBBBA includes significant tax reforms, including the reinstatement of immediate expensing for domestic research and development expenditures, the option to claim 100% accelerated depreciation deductions on qualified property, and modifications in international tax provisions. The change to U.S. tax law enacted by the OBBBA resulted in an immaterial effect on the income tax provision due to the Company’s valuation allowance and has been accounted for in the current period.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 10, 2026 | Showing above |
| 2024 | Feb 19, 2025 | |
| 2023 | Feb 29, 2024 | |
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.