MORGAN STANLEYMS
MORGAN STANLEY Income Taxes Disclosure
Income Taxes
Components of Provision for Income Taxes
| $ in millions | 2025 | 2024 | 2023 | ||||||||
| Current | |||||||||||
U.S. federal | $ | 2,232 | $ | 2,011 | $ | 1,190 | |||||
State and local | 601 | 660 | 542 | ||||||||
Foreign | 1,535 | 1,244 | 1,314 | ||||||||
| Total | $ | 4,368 | $ | 3,915 | $ | 3,046 | |||||
| Deferred | |||||||||||
U.S. federal | $ | 394 | $ | 8 | $ | (295) | |||||
State and local | 91 | (6) | (59) | ||||||||
Foreign | 76 | 150 | (109) | ||||||||
| Total | $ | 561 | $ | 152 | $ | (463) | |||||
| Provision for income taxes | $ | 4,929 | $ | 4,067 | $ | 2,583 | |||||
Reconciliation of U.S. Federal Statutory Income Tax to Effective Income Tax
Year Ended December 31, | ||||||||||||||||||||||||||
$ in millions | 2025 | 2024 | 2023 | |||||||||||||||||||||||
| $ | % | $ | % | $ | % | |||||||||||||||||||||
| U.S. federal statutory tax | $ | 4,610 | 21.0 | % | $ | 3,695 | 21.0 | % | $ | 2,481 | 21.0 | % | ||||||||||||||
State and local taxes1 | 430 | 2.0 | 378 | 2.1 | 292 | 2.5 | ||||||||||||||||||||
| Foreign taxes | ||||||||||||||||||||||||||
India | ||||||||||||||||||||||||||
| Capital gains tax | 115 | 0.5 | 205 | 1.2 | 50 | 0.4 | ||||||||||||||||||||
| Other | 14 | 0.1 | 15 | 0.1 | 11 | 0.1 | ||||||||||||||||||||
Brazil | ||||||||||||||||||||||||||
| Capital gains tax | 17 | 0.1 | 21 | 0.1 | 347 | 2.9 | ||||||||||||||||||||
| Other | 22 | 0.1 | 15 | 0.1 | 15 | 0.1 | ||||||||||||||||||||
| Other jurisdictions | 252 | 1.1 | 161 | 0.9 | 80 | 0.7 | ||||||||||||||||||||
| Changes in tax laws and rates | — | 0.0 | 15 | 0.1 | — | 0.0 | ||||||||||||||||||||
Cross-border taxes | 12 | 0.1 | 30 | 0.2 | 47 | 0.4 | ||||||||||||||||||||
| U.S. tax credits | ||||||||||||||||||||||||||
General business credits | (260) | (1.2) | (295) | (1.7) | (285) | (2.4) | ||||||||||||||||||||
Foreign tax credit | (28) | (0.1) | (50) | (0.3) | (375) | (3.2) | ||||||||||||||||||||
| Changes in valuation allowances | 9 | 0.0 | 14 | 0.1 | (2) | 0.0 | ||||||||||||||||||||
| Nontaxable or nondeductible items | ||||||||||||||||||||||||||
Income/(loss) from affiliates | (413) | (1.9) | (368) | (2.1) | (241) | (2.0) | ||||||||||||||||||||
Employee share-based compensation | (167) | (0.8) | (71) | (0.4) | (138) | (1.2) | ||||||||||||||||||||
| Other | 30 | 0.1 | 36 | 0.2 | 79 | 0.7 | ||||||||||||||||||||
Unrecognized tax benefits | 99 | 0.5 | 77 | 0.4 | 66 | 0.6 | ||||||||||||||||||||
Other | ||||||||||||||||||||||||||
Proportional amortization | 187 | 0.9 | 189 | 1.1 | 156 | 1.3 | ||||||||||||||||||||
Effective tax | $ | 4,929 | 22.5 | % | $ | 4,067 | 23.1 | % | $ | 2,583 | 21.9 | % | ||||||||||||||
1.Amounts are net of U.S. federal income tax benefits. The tax effects in this category were primarily related to New York State and City in 2025, 2024 and 2023.
Income Taxes Paid, Net of Refunds
$ in millions | 2025 | 2024 | 2023 | |||||||||||
U.S. federal | $ | 1,501 | $ | 452 | $ | 408 | ||||||||
State and local | ||||||||||||||
New York State | * | 111 | * | |||||||||||
New York City | * | 126 | * | |||||||||||
Other | 433 | 96 | 233 | |||||||||||
Foreign | ||||||||||||||
U.K. | 441 | 200 | 257 | |||||||||||
India | 189 | 235 | 126 | |||||||||||
Brazil | * | 99 | 382 | |||||||||||
Japan | * | * | 179 | |||||||||||
Germany | * | * | 153 | |||||||||||
Other | 940 | 566 | 297 | |||||||||||
Total | $ | 3,504 | $ | 1,885 | $ | 2,035 | ||||||||
*The amount of incomes taxes paid during the year does not meet the 5% disaggregation threshold and has been included in the relevant Other category above.
Deferred Tax Assets and Liabilities
| $ in millions | At Dec 31, 2025 | At Dec 31, 2024 | ||||||
| Gross deferred tax assets | ||||||||
| Net operating loss and tax credit carryforwards | $ | 265 | $ | 236 | ||||
| Employee compensation and benefit plans | 2,597 | 2,565 | ||||||
| Allowance for credit losses and other reserves | 802 | 796 | ||||||
| Valuation of net trading inventory, investments and receivables | 1,668 | 1,808 | ||||||
| Other | 142 | 223 | ||||||
| Total deferred tax assets | 5,474 | 5,628 | ||||||
| Less: Deferred tax assets valuation allowance | 229 | 214 | ||||||
| Deferred tax assets after valuation allowance | $ | 5,245 | $ | 5,414 | ||||
| Gross deferred tax liabilities | ||||||||
| Fixed assets | 1,161 | 801 | ||||||
| Intangibles and goodwill | 1,844 | 1,931 | ||||||
| Total deferred tax liabilities | $ | 3,005 | $ | 2,732 | ||||
| Net deferred tax assets | $ | 2,240 | $ | 2,682 | ||||
Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when such differences are expected to reverse.
The Firm believes the recognized net deferred tax assets (after valuation allowance) at December 31, 2025 are more likely than not to be realized based on expectations as to future taxable income in the jurisdictions in which it operates.
The earnings of certain foreign subsidiaries and affiliates are indefinitely reinvested due to regulatory and other capital requirements in foreign jurisdictions. As of December 31, 2025 and December 31, 2024, the unrecognized deferred tax liability attributable to indefinitely reinvested earnings is $490 million and $405 million, respectively.
Rollforward of Unrecognized Tax Benefits
| $ in millions | 2025 | 2024 | 2023 | ||||||||
| Balance at beginning of period | $ | 1,305 | $ | 1,244 | $ | 1,129 | |||||
| Increases based on tax positions related to the current period | 211 | 202 | 147 | ||||||||
| Increases based on tax positions related to prior periods | 78 | 132 | 141 | ||||||||
| Decreases based on tax positions related to prior periods | (30) | (52) | (73) | ||||||||
| Decreases related to settlements with taxing authorities | (2) | (174) | (79) | ||||||||
| Decreases related to lapse of statute of limitations | (44) | (47) | (21) | ||||||||
| Balance at end of period | $ | 1,518 | $ | 1,305 | $ | 1,244 | |||||
Net unrecognized tax benefits1 | $ | 1,347 | $ | 1,159 | $ | 1,090 | |||||
1.Represent ending unrecognized tax benefits adjusted for the impact of the federal benefit of state issues, competent authority arrangements and foreign tax credit offsets. If recognized, these net benefits would favorably impact the effective tax rate in future periods.
Interest Expense (Benefit) and Penalties Associated with Unrecognized Tax Benefits, Net of Federal and State Income Tax Benefits
| $ in millions | 2025 | 2024 | 2023 | ||||||||
| Recognized in income statement | $ | 109 | $ | 92 | $ | 65 | |||||
| Accrued at end of period | 364 | 255 | 237 | ||||||||
Interest and penalties related to unrecognized tax benefits are recognized as a component of the provision for income taxes.
Earliest Tax Year Subject to Examination in Major Jurisdictions
| Jurisdiction | Tax Year | ||||
| U.S. | 2017 | ||||
| New York State and New York City | 2010 | ||||
| U.K. | 2014 | ||||
| Japan | 2021 | ||||
| Hong Kong | 2018 | ||||
The Firm is routinely under examination by the IRS and other tax authorities in certain countries, such as the U.K., and in states and localities in which it has significant business operations, such as New York.
The Firm believes that the resolution of these tax examinations will not have a material effect on the annual financial statements, although a resolution could have a material impact in the income statement and on the effective tax rate for any period in which such resolutions occur.
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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.