Life360, Inc.LIF
Life360, Inc. Income Taxes Disclosure
14. Income Taxes
The Company has historically incurred pre-tax net operating losses only in the United States since its inception. During the year ended December 31, 2024, the Company incurred $5.5 million of pre-tax net operating losses in the United States and $0.9 million of pre-tax net operating income internationally.
An income tax provision (benefit) of $(0.1) million, $0.6 million and $0.1 million was recorded for the years ended December 31, 2024, 2023 and 2022, respectively. In accordance with ASC 805, a change in the acquirer’s valuation allowance that stems from a business combination should be recognized as an element of the acquirer’s income tax expense or benefit in the period of the acquisition.
The reconciliation of the Company’s effective tax rate to the U.S. statutory federal income tax rate was as follows:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Statutory federal income tax rate | 21 | % | 21 | % | 21 | % | |||||||||||
| State tax rate | 43 | % | (3) | % | — | % | |||||||||||
| Research and development tax credits | 103 | % | 5 | % | — | % | |||||||||||
| Stock-based compensation | 273 | % | 1 | % | (2) | % | |||||||||||
| Fair value adjustment | (4) | % | (1) | % | 2 | % | |||||||||||
| Permanent differences | (4) | % | (1) | % | (2) | % | |||||||||||
| Officer Compensation | (102) | % | (10) | % | — | % | |||||||||||
| Change in valuation allowance | (303) | % | (14) | % | (19) | % | |||||||||||
Stock issuance | (25) | % | — | % | — | % | |||||||||||
| Effective tax rate | 2 | % | (2) | % | — | % | |||||||||||
The significant components of net deferred income tax assets were as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Deferred tax assets: | |||||||||||
| Reserves and allowances | $ | 2,977 | $ | 1,002 | |||||||
| Lease liability | 175 | 259 | |||||||||
| Depreciable assets | — | 162 | |||||||||
| Net operating loss carryforward | 52,776 | 46,877 | |||||||||
| Stock-based compensation | 3,307 | 4,359 | |||||||||
| Capitalized research and development | 42,610 | 39,112 | |||||||||
| Credits carryforward | 16,937 | 12,651 | |||||||||
| Total deferred tax assets | 118,782 | 104,422 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Operating lease right-of-use asset | (165) | (250) | |||||||||
Depreciable assets | (125) | — | |||||||||
| Acquired intangibles | (9,178) | (10,073) | |||||||||
Data Revenue Partner Warrant | (2,302) | — | |||||||||
| Total deferred tax liabilities | (11,770) | (10,323) | |||||||||
| Less: Valuation allowance and other reserves | (107,012) | (94,099) | |||||||||
| Net deferred tax asset | $ | — | $ | — | |||||||
The Company has provided a full valuation allowance on the net deferred tax assets. The valuation allowance increased by $12.9 million during 2024 and $4.5 million during 2023.
At December 31, 2024 the Company had approximately $219.5 million and $121.5 million of federal and state net operating loss carryforwards, respectively, available to offset future taxable income. Such carryforwards expire in varying amounts beginning in 2027. The federal net operating loss carryforwards of $145.6 million arising after December 31, 2017 do not expire.
The Company also had federal and state research and development credit carryforwards of $15.5 million and $14.7 million, respectively. The federal tax credits expire in varying amounts beginning in 2034. The state tax credits do not expire. Additionally, the Company has approximately $0.2 million of tax credits in Canada, which are expected to expire in varying amounts beginning 2033.
The Tax Reform Act of 1986 limits the use of net operating loss carryforwards in certain situations where changes occur in the stock ownership of a Company. The annual limitation may result in the expiration of net operating losses and credits before utilization. The Company performed a Section 382 analysis through December 31, 2024. The Company does not expect any previous ownership changes (as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended) to result in a limitation that will materially reduce the total amount of net operating loss carryforwards and credits that can be utilized. Subsequent ownership changes may affect the limitation in future years.
The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and Canada. In the normal course of business, the Company is subject to examination by taxing authorities throughout the nation. The Company is not currently under audit by the Internal Revenue Service or other similar state and local authorities. All tax years remain open to examination by major taxing jurisdictions to which the Company is subject.
As of December 31, 2024 and 2023, the Company had $12.0 million and $12.1 million, respectively, of gross unrecognized tax benefits related to federal and state research credits. As of December 31, 2024 all unrecognized tax benefits, if recognized, will not affect the Company’s effective tax rate. The Company does not anticipate any unrecognized tax benefits in the next 12 months that would result in a material change to its financial position.
The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in thousands):
| Balance as of December 31, 2022 | $ | 11,091 | |||
| Additions based on tax positions related to 2023 | 968 | ||||
| Additions for tax positions of prior years | — | ||||
| Balance as of December 31, 2023 | 12,059 | ||||
| Additions based on tax positions related to 2024 | 2,050 | ||||
Reductions for tax positions of prior years | (2,077) | ||||
| Balance as of December 31, 2024 | $ | 12,032 | |||
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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.