LEGALZOOM.COM, INC.LZ
LEGALZOOM.COM, INC. Income Taxes Disclosure
Income Taxes
The following are the domestic and foreign components of our income (loss) before income taxes (in thousands):
Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | 25,366 | $ | 28,678 | $ | 34,518 | |||||||||||
| Foreign | 7,072 | 14,405 | (3,024) | ||||||||||||||
| Total income before income taxes | $ | 32,438 | $ | 43,083 | $ | 31,494 | |||||||||||
The details for the provision for income taxes by jurisdiction are as follows (in thousands):
Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | 7,117 | $ | 13,258 | $ | 8,984 | |||||||||||
| State | 2,909 | 4,019 | 3,621 | ||||||||||||||
| Foreign | 351 | 395 | 224 | ||||||||||||||
| Total current provision | 10,377 | 17,672 | 12,829 | ||||||||||||||
| Deferred | |||||||||||||||||
| Federal | 4,609 | (3,741) | 5,481 | ||||||||||||||
| State | 2,147 | (736) | (769) | ||||||||||||||
Foreign | (122) | (75) | — | ||||||||||||||
| Total deferred provision for (benefit from) income taxes | 6,634 | (4,552) | 4,712 | ||||||||||||||
| Total provision for income tax | $ | 17,011 | $ | 13,120 | $ | 17,541 | |||||||||||
On July 4, 2025, H.R.1, the One Big Beautiful Act, or OBBBA, was enacted. The OBBBA includes numerous business tax provisions including 100% bonus depreciation, provisions related to expensing domestic research and development expenses as well as modifications to the business interest expense limitation calculation. As a result of incorporating the changes under the OBBBA we recorded a decrease to deferred tax assets for capitalized research and development costs resulting in a current tax benefit offset by deferred tax expense.
A reconciliation of the provision for income taxes to the amount computed by applying the U.S. federal income tax rate of 21% to income before taxes after the adoption of ASU 2023-09 is as follows (in thousands):
Year Ended December 31, | |||||||||||
| 2025 | |||||||||||
| Tax at U.S. statutory rate | $ | 6,812 | 21.0 | % | |||||||
State and local income taxes(1) | 3,326 | 10.3 | % | ||||||||
| Foreign tax effects | |||||||||||
| United Kingdom | (1,394) | (4.3) | % | ||||||||
| Other foreign jurisdictions | 152 | 0.5 | % | ||||||||
| Tax credits | |||||||||||
| Research and development credits | (3,817) | (11.8) | % | ||||||||
| Nontaxable and nondeductible Items | |||||||||||
| Share-based payment awards | 10,719 | 33.0 | % | ||||||||
| Internal reorganization costs | 1,689 | 5.2 | % | ||||||||
| Acquisition costs | 359 | 1.1 | % | ||||||||
| Other | 308 | 1.0 | % | ||||||||
| Changes in unrecognized tax benefits | 2,844 | 8.8 | % | ||||||||
| Other adjustments | |||||||||||
| Loss on subsidiary stock | (3,522) | (10.9) | % | ||||||||
| Other | (465) | (1.4) | % | ||||||||
| Effective tax rate | $ | 17,011 | 52.5 | % | |||||||
(1) The states and local jurisdictions that contribute to the majority (greater than 50%) of the tax effect in this category include Delaware, New York, Pennsylvania and Texas.
The provision for income taxes for December 31, 2024, and 2023, differed from the amounts computed by applying the U.S. Federal income tax rate of 21% to income before income taxes prior to the adoption of ASU 2023-09 as a result of the following (in thousands):
Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Provision for income taxes at statutory rate | $ | 9,047 | $ | 6,614 | |||||||
| State income taxes, net of federal benefit | 2,186 | 1,796 | |||||||||
| Rate differential on foreign earnings | (2,670) | (130) | |||||||||
| Research and development credits | (5,152) | (4,894) | |||||||||
| Change in valuation allowance | (413) | 814 | |||||||||
| Stock-based compensation | 2,698 | 4,538 | |||||||||
| Nondeductible stock-based compensation | 5,757 | 6,053 | |||||||||
| Unrecognized tax benefits | 1,699 | 2,498 | |||||||||
| Non-deductible expenses | 298 | 350 | |||||||||
| Other | (330) | (98) | |||||||||
| Total provision for income taxes | $ | 13,120 | $ | 17,541 | |||||||
Cash paid for income taxes, net of refunds received, after the adoption of ASU 2023-09, for the year ended December 31, 2025 is as follows (in thousands):
Year Ended December 31, | |||||
| 2025 | |||||
| Federal | $ | 5,404 | |||
| State and local | |||||
| California | 466 | ||||
| Other | 2,739 | ||||
| Foreign | 305 | ||||
| Cash paid for income taxes, net of refunds received | $ | 8,914 | |||
Cash paid for income taxes for the years ended December 31, 2024 and 2023 was $26.2 million and $6.6 million, respectively.
The tax effects of temporary differences that give rise to significant portions of our deferred tax assets and liabilities consisted of the following as of December 31, 2025 and 2024, (in thousands):
As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets | |||||||||||
| Deferred revenue | $ | 123 | $ | 153 | |||||||
| Accrued expenses | 9,687 | 7,088 | |||||||||
| Stock-based compensation | 6,606 | 4,070 | |||||||||
| Net operating loss carryforwards | 17,157 | 14,918 | |||||||||
| Tax credit carryforwards | 9,360 | 10,264 | |||||||||
| Lease liabilities | 3,777 | 1,957 | |||||||||
| Interest expense carryforwards | 1,844 | 2,782 | |||||||||
| Capital loss carryforwards | — | 453 | |||||||||
| Capitalized research expenses | 18,665 | 34,957 | |||||||||
| Total deferred tax assets | 67,219 | 76,642 | |||||||||
| Valuation allowance | (15,941) | (16,876) | |||||||||
| Net deferred tax assets | 51,278 | 59,766 | |||||||||
| Deferred tax liabilities | |||||||||||
| Depreciation and amortization | (12,078) | (19,340) | |||||||||
| Right of use asset | (3,523) | (1,780) | |||||||||
| State taxes | (3,793) | (3,950) | |||||||||
| Net deferred tax liabilities | (19,394) | (25,070) | |||||||||
| Net deferred tax assets and liabilities | $ | 31,884 | $ | 34,696 | |||||||
We evaluated the realizability of net deferred tax assets and determined it is more likely than not that separate state net operating losses, the deferred tax assets for Pulse IP, LLC and Pulse Business, LLC, and
foreign deferred tax assets, excluding Poland, will not be realized based on the available objective evidence and have recorded a valuation allowance on such deferred tax assets.
The following table summarizes the valuation allowance (in thousands):
Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Beginning balance | $ | 16,876 | $ | 16,320 | $ | 14,644 | |||||||||||
| Net (decrease) increase in current year | (481) | (654) | 799 | ||||||||||||||
| Net (decrease) increase in valuation prior period | (454) | 1,210 | 877 | ||||||||||||||
Ending balance | $ | 15,941 | $ | 16,876 | $ | 16,320 | |||||||||||
Net changes in the valuation allowance in the years ended December 31, 2025, 2024, and 2023 include changes recorded through earnings relating to losses primarily from foreign operations and the release in 2024 of the valuation allowance on the capital loss carryover from the acquisition of Earth Class Mail, Inc. and the release of the valuation allowance on one of the foreign entities.
At December 31, 2025 and 2024, we had federal net operating loss, or NOL, carryforwards of $27.5 million and $16.6 million, respectively, which will begin to expire in 2036 on a tax return basis. At December 31, 2025, and 2024, we had state NOL carryforwards of $41.3 million and $28.8 million on a tax return basis, respectively, which will begin to expire in 2026. At December 31, 2025 and 2024, we had foreign NOL carryforwards of $32.8 million and $35.1 million on a tax return basis, respectively, which can be carried forward indefinitely and are not subject to expiration. At December 31, 2025,and 2024, our federal tax credit carryforwards were immaterial. At December 31, 2025 and 2024, we had state tax credit carryforwards of $14.0 million and $13.9 million on a tax return basis, respectively, which carry forward indefinitely. Our domestic entities may be subject to an annual limitation on the utilization of NOL and credit carryforwards based on changes in ownership as defined by Section 382 of the Internal Revenue Code of 1986. In 2022 and 2025, we acquired Revvsales Inc. and Formation Nation, respectively, as stock acquisitions, and since there was a change in ownership, the acquired NOL carryforwards are subject to an annual Section 382 limitation on the utilization of the NOL carryforwards.
We have had foreign operations since 2013. We have not provided for U.S. income taxes on the undistributed earnings and other outside temporary differences of foreign subsidiaries as they are considered indefinitely reinvested outside the U.S. At December 31, 2025, 2024, and 2023, the amount of temporary differences related to undistributed earnings and other outside temporary differences upon which U.S. income taxes are not material to our consolidated financial statements.
The following table summarizes the changes in unrecognized tax benefits for the years ended December 31, 2025, 2024, and 2023 (in thousands):
| Gross Unrealized Tax Benefits | |||||
| Balance at December 31, 2022 | $ | 8,920 | |||
| Additions for tax positions related to the current year | 2,181 | ||||
| Additions for tax positions related to prior years | 418 | ||||
| Balance at December 31, 2023 | $ | 11,519 | |||
| Additions for tax positions related to the current year | 2,854 | ||||
| Reductions for tax positions related to prior years | (966) | ||||
| Balance at December 31, 2024 | $ | 13,407 | |||
| Additions for tax positions related to the current year | 1,965 | ||||
| Additions for tax positions related to prior years | 1,416 | ||||
| Balance at December 31, 2025 | $ | 16,788 | |||
If recognized, $16.8 million of unrecognized tax benefits, excluding interest and penalties, would reduce our annual effective tax rate. Due to the uncertain and complex application of tax laws and regulations, it is possible that the ultimate resolution of uncertain positions may result in liabilities that could be materially different from these estimates. In such an event, we will record additional tax expense or benefit in the period
in which resolution occurs. Our policy is to recognize interest and penalties related to income tax matters in income tax expense. At December 31, 2025 and 2024, accrued interest and penalties related to income tax positions were not material to our consolidated financial statements.
We are subject to taxation and file income tax returns in the U.S. federal, state, and foreign jurisdictions. The federal income tax returns for the years 2022 and forward and state income tax returns for the tax years 2008 and forward remain open to examination. We are under examination in two states which are not expected to have an impact on our results of operations, cash flows and financial condition.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 23, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 24, 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.