LENZ Therapeutics, Inc.LENZ
LENZ Therapeutics, Inc. Income Taxes Disclosure
Income Taxes
Net loss before income taxes for the years ended December 31, 2025 and 2024 was derived solely from U.S. sources. The Company has not reflected any benefit of such net operating loss carryforwards in the financial statements due to the full valuation allowance recorded against net deferred tax assets. The components of the income tax expense were as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Current | |||||||||||
| Federal | $ | — | $ | — | |||||||
| State | 2 | 1 | |||||||||
| Foreign | 500 | — | |||||||||
| Total current | 502 | 1 | |||||||||
| Deferred | |||||||||||
| Federal | — | — | |||||||||
| State | — | — | |||||||||
| Foreign | — | — | |||||||||
| Total deferred | — | — | |||||||||
| Total income tax expense | $ | 502 | $ | 1 | |||||||
Income taxes paid by jurisdiction was as follows (in thousands):
| Year Ended December 31, | |||||
| 2025 | |||||
U.S. Federal taxes | $ | — | |||
U.S. State and local taxes | 2 | ||||
Foreign taxes | |||||
| Singapore | 500 | ||||
Total income taxes paid | 502 | ||||
A reconciliation of the Company's income tax expense to the amount computed by applying the federal statutory income tax rate for the year ended December 31, 2025 is summarized as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | |||||||||||
| Amount | Percentage | ||||||||||
Statutory regular federal income tax rate | $ | (17,140) | 21.0 | % | |||||||
State and local income taxes, net of federal income tax effect1 | 263 | (0.3) | % | ||||||||
| Foreign tax effects | |||||||||||
| Singapore | |||||||||||
| Witholding taxes | 500 | (0.6) | % | ||||||||
| Tax credits | |||||||||||
Research and development tax credit | (763) | 0.9 | % | ||||||||
Changes in valuation allowance | 16,026 | (19.6) | % | ||||||||
Nontaxable and nondeductible items | |||||||||||
| Nondeductible executive compensation | 1,291 | (1.6) | % | ||||||||
Other | 282 | (0.3) | % | ||||||||
| Changes in unrecognized tax benefits | 114 | (0.2) | % | ||||||||
Other adjustments | (71) | 0.1 | % | ||||||||
Effective tax rate | $ | 502 | (0.6) | % | |||||||
1State taxes in California and Virginia make up the majority (greater than 50%) of the tax effect in this category. | |||||||||||
A reconciliation of the Company’s income tax expense to the amount computed by applying the federal statutory income tax rate for the year ended December 31, 2024 is summarized as follows (in thousands):
| Year Ended December 31, | |||||
| 2024 | |||||
| Expected tax benefit computed at federal statutory rate | $ | (10,452) | |||
| State income taxes, net of federal tax benefit | (2,117) | ||||
| Research and development credits | (2,119) | ||||
| Reserve for uncertain tax positions | 2,328 | ||||
Prior year permanent differences | 586 | ||||
| Current year permanent differences | 377 | ||||
| Other | 515 | ||||
| Change in valuation allowance | 10,883 | ||||
| Income tax expense | $ | 1 | |||
Significant components of the Company’s net deferred tax assets (liabilities) are summarized as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets | |||||||||||
| Net operating loss carryforwards | $ | 38,196 | $ | 15,543 | |||||||
| Research and development credit carryforwards | 8,918 | 8,162 | |||||||||
| Capitalized research and development | 20,723 | 28,294 | |||||||||
| Other | 2,964 | 1,795 | |||||||||
| Total deferred tax assets | 70,801 | 53,794 | |||||||||
| Valuation allowance | (70,313) | (53,174) | |||||||||
| Net deferred tax assets | 488 | 620 | |||||||||
| Deferred tax liabilities | |||||||||||
| Other | (488) | (620) | |||||||||
| Total deferred tax liabilities | 488 | 620 | |||||||||
| Net deferred tax assets | $ | — | $ | — | |||||||
Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company evaluated the available evidence supporting the realization of its gross deferred tax assets, including the amount and timing of future taxable income, and has determined it is more likely than not that the assets will not be realized. Due to uncertainties surrounding the realizability of the deferred tax assets, the Company maintained a full valuation allowance against its deferred tax assets at December 31, 2025 and 2024.
The Company had a valuation allowance of $70.3 million at December 31, 2025 to offset the net deferred tax assets as realization of such assets is uncertain. The valuation allowance increased by $17.1 million during the year ended December 31, 2025.
The Tax Cuts and Jobs Act (TCJA) historically required taxpayers to capitalize and amortize research and development (R&D) expenditures under section 174 for tax years beginning after December 31, 2022. This rule became effective for the Company during the year ended December 31, 2023, resulting in the capitalization of R&D costs, net of amortization, of approximately $90.7 million and $128.3 million as of December 31, 2025 and December 31, 2024, respectively. The Company will continue to amortize these costs for tax purposes over 5 years for R&D performed in the U.S. and over 15 years for R&D performed outside the U.S.
On July 4, 2025, the U.S. enacted tax reform legislation through the One Big Beautiful Bill Act (the "Act”). Included in this legislation are provisions that allow for the immediate expensing of domestic U.S. research and development expenses, immediate expensing of certain capital expenditures, changes to the interest expense limitation and other changes to the U.S. taxation of profits derived from foreign operations. The Act did not have a material impact on our consolidated financial statements.
At December 31, 2025, the Company's federal and state net operating loss (NOL) and tax credit carryforwards were as follows (in thousands):
| Amount | Expiration Years | ||||||||||
| Net operating losses, federal (starting from January 1, 2018) | $ | 178,923 | Do not expire | ||||||||
| Net operating losses, state | 12,415 | Starting in 2040 | |||||||||
| Tax credits, federal | 8,289 | Starting in 2040 | |||||||||
| Tax credits, state | 797 | 2042 | |||||||||
Utilization of NOL carryforwards and other tax attributes, including those obtained through the Merger, may be subject to substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended, due to ownership
change limitations that have occurred previously or that could occur in the future. An ownership change occurs, generally, if the percentage of stock of the loss corporation owned by one or more 5% shareholders has increased by more than 50 percentage points relative to the lowest percentage of stock of the loss corporation owned by the same 5% shareholders at any time during the testing period (generally, the three-year period preceding a testing date). These ownership changes may limit the amount of NOL carryforwards and tax credits that can be utilized annually to offset future taxable income. State NOL carryforwards and other state tax attributes may be similarly limited. During the year ended December 31, 2024, the Company completed a Section 382 analysis, and determined that an ownership change more likely than not occurred on March 21, 2024 as a result of the Merger. The ownership change resulted in a limitation that will reduce the total amount of NOL carryforwards and tax credits disclosed that can be utilized to offset future taxable income. The Company adjusted the carryforward attributes accordingly, with an offsetting adjustment to the valuation allowance. Subsequent ownership changes may affect the limitation in future years.
The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more likely than not recognition at the effective date to be recognized. As of December 31, 2025 and 2024, the Company had no unrecognized tax benefits that, if recognized and realized, would affect the effective tax rate due to the valuation allowance against deferred tax assets.
The following table summarizes the changes to the Company’s gross unrecognized tax benefits (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Balance at beginning of year | $ | 4,282 | $ | 1,953 | |||||||
Increases (decreases) related to prior year tax positions | (12) | (5) | |||||||||
| Increases related to current year tax positions | 146 | 2,334 | |||||||||
| Balance at end of year | 4,416 | 4,282 | |||||||||
The Company's policy is to recognize interest and penalties related to income tax matters as income tax expense. The Company had no accrual for interest or penalties on the Company's consolidated balance sheets at December 31, 2025 or 2024, and has not recognized interest and/or penalties in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2025 and 2024. As of December 31, 2025 and 2024, the Company had unrecognized tax benefits of $3.7 million and $3.5 million, respectively, which if recognized currently, should not impact the effective tax rate due to the Company maintaining a full valuation allowance. The Company does not expect that there will be a significant change in the unrecognized tax benefit over the next twelve months.
The Company is subject to taxation in the U.S. federal and various state jurisdictions. All of the Company’s tax years are subject to examination by federal and state tax authorities due to the carryforward of unutilized net operating losses and R&D credits. Further the Company is not currently under examination by any federal, state or local tax authority.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 24, 2026 | Showing above |
| 2024 | Mar 19, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Mar 20, 2023 | |
| 2021 | Mar 21, 2022 | |
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.