Strategy IncMSTR
Strategy Inc Income Taxes Disclosure
Income Taxes
Income before Income Tax Expense – Domestic and Foreign
U.S. and international components of (loss) income before income taxes (in thousands) were comprised of the following for the periods indicated:
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| U.S. | $ | (5,578,372) | $ | (1,966,444) | $ | (157,810) | |||||||||||
| Foreign | 52,418 | 32,098 | 33,285 | ||||||||||||||
| Total | $ | (5,525,954) | $ | (1,934,346) | $ | (124,525) | |||||||||||
The (benefit from) provision for income taxes (in thousands) consisted of the following for the periods indicated:
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 24 | $ | (5,202) | $ | 2,774 | |||||||||||
| State | 708 | 72 | 3,376 | ||||||||||||||
| Foreign | 5,417 | 5,368 | 9,146 | ||||||||||||||
| $ | 6,149 | $ | 238 | $ | 15,296 | ||||||||||||
| Deferred: | |||||||||||||||||
| Federal | $ | (1,116,016) | $ | (505,359) | $ | (374,800) | |||||||||||
| State | (569,751) | (262,441) | (194,374) | ||||||||||||||
| Foreign | 1,816 | (123) | 232 | ||||||||||||||
| $ | (1,683,951) | $ | (767,923) | $ | (568,942) | ||||||||||||
| Total Income tax expense (benefit) | |||||||||||||||||
| Federal | $ | (1,115,992) | $ | (510,561) | $ | (372,026) | |||||||||||
| State | (569,043) | (262,369) | (190,998) | ||||||||||||||
| Foreign | 7,233 | 5,245 | 9,378 | ||||||||||||||
| Total benefit | $ | (1,677,802) | $ | (767,685) | $ | (553,646) | |||||||||||
Reconciliation of Statutory Federal Income Tax Rate to the Effective Income Tax Rate
The benefit from or provision for income taxes differs from the amount computed by applying the federal statutory income tax rate to the Company’s loss before income taxes as follows for the periods indicated.
Below is a tabular rate reconciliation pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 (in thousands):
| December 31, 2025 | ||||||||||||||
| $ | % | |||||||||||||
| U.S. Federal Statutory Tax Rate | $ | (1,160,450) | 21.0 | % | ||||||||||
| State and Local Income Tax, Net of Federal Income Tax Effect* | (449,659) | 8.1 | % | |||||||||||
| Foreign Tax Effects | ||||||||||||||
| Other Foreign Jurisdictions | (3,912) | 0.1 | % | |||||||||||
| Domestic U.S. Federal | ||||||||||||||
| Effect of Cross-Border Tax Laws | 2,746 | (0.1) | % | |||||||||||
| Tax Credits | (8,710) | 0.2 | % | |||||||||||
| Nontaxable or Nondeductible Items | ||||||||||||||
| Stock Compensation | (61,051) | 1.1 | % | |||||||||||
| Other | 2,291 | — | % | |||||||||||
| Changes in Unrecognized Tax Benefits | 943 | — | % | |||||||||||
| Total tax benefit and effective income tax rate | $ | (1,677,802) | 30.4 | % | ||||||||||
* State taxes in Virginia made up the majority (greater than 50 percent) of the tax effect in this category.
During the year ended December 31, 2025, the Company's benefit from income taxes primarily related to (i) the tax effect of the unrealized loss on digital assets and (ii) a tax benefit related to share-based compensation (including the income tax effects of exercises of stock options and vesting of share-settled restricted stock units).
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:
| December 31, 2025 | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Income tax expense at federal statutory rate | 21.0 | % | 21.0 | % | ||||||||||
| State taxes, net of federal tax effect | 10.7 | % | 8.4 | % | ||||||||||
| Other international components | (0.5) | % | (3.4) | % | ||||||||||
| Change in valuation allowance | — | % | 409.5 | % | ||||||||||
| Non-deductible officers compensation | (0.9) | % | (5.5) | % | ||||||||||
| Research and development tax credit | 0.5 | % | 2.7 | % | ||||||||||
| Share-based compensation | 8.7 | % | 3.4 | % | ||||||||||
| Rate changes, including states | (0.1) | % | 11.0 | % | ||||||||||
| Other permanent differences (1) | 0.3 | % | (2.5) | % | ||||||||||
| Effective income tax rate | 39.7 | % | 444.6 | % | ||||||||||
(1)Included in the “Other permanent differences” category in the table above are other permanent items, each below the threshold required for separate presentation in the table.
During the year ended December 31, 2024, the Company's benefit from income taxes primarily related to (i) a tax benefit from an increase in the Company's deferred tax asset related to the impairment on its bitcoin holdings and (ii) a tax benefit related to share-based compensation (including the income tax effects of exercises of stock options and vesting of share-settled restricted stock units).
Income Tax Payments
The following table presents income taxes paid (net of refunds received) for the year ended December 31, 2025 (in thousands):
| Jurisdictions | Income Taxes Paid | |||||||
| Federal Taxes | ||||||||
| U.S. | $ | 7,931 | ||||||
| State Taxes | ||||||||
| Other State Jurisdictions | 1,044 | |||||||
| Foreign Taxes | ||||||||
| Netherlands | 1,047 | |||||||
| Other Foreign Jurisdictions | 3,110 | |||||||
| Total | $ | 13,132 | ||||||
Deferred tax assets and liabilities
Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities (in thousands) were as follows for the periods indicated:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets, net: | |||||||||||
| Net operating loss carryforwards | $ | 327,200 | $ | 231,063 | |||||||
| Tax credit carryforwards | 14,270 | 6,287 | |||||||||
| Intangible assets, including capitalized R&D | 112,430 | 88,362 | |||||||||
| Deferred revenue | 1,021 | 902 | |||||||||
| Accrued compensation | 5,264 | 5,204 | |||||||||
| Share-based compensation expense | 12,340 | 14,042 | |||||||||
| Digital asset impairment losses | — | 1,165,831 | |||||||||
| Interest expense carryforward | 36,320 | 24,974 | |||||||||
| Lease liability | 14,363 | 16,734 | |||||||||
| Other | 6,719 | 1,854 | |||||||||
| Deferred tax assets before valuation allowance | 529,927 | 1,555,253 | |||||||||
| Valuation allowance | (494) | (494) | |||||||||
| Deferred tax assets, net of valuation allowance | 529,433 | 1,554,759 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Prepaid expenses and other | (14,078) | (8,278) | |||||||||
| Digital assets | (2,417,297) | — | |||||||||
| Property and equipment | — | (373) | |||||||||
| Deferred tax on undistributed foreign earnings | (4,583) | (3,962) | |||||||||
| Right of use asset | (15,422) | (17,246) | |||||||||
| Total deferred tax liabilities | (2,451,380) | (29,859) | |||||||||
| Total net deferred tax asset (liability) | $ | (1,921,947) | $ | 1,524,900 | |||||||
| Reported as: | |||||||||||
| Non-current deferred tax assets | 4,507 | 1,525,307 | |||||||||
| Non-current deferred tax liabilities | (1,926,454) | (407) | |||||||||
| Total net deferred tax asset (liability) | $ | (1,921,947) | $ | 1,524,900 | |||||||
The Company had $1.10 billion of U.S. Net operating loss ("NOL") carryforwards as of December 31, 2025 that can be carried forward indefinitely and $775.9 million of U.S. NOL carryforwards as of December 31, 2024. In addition, as of December 31, 2025, the Company had $14.3 million of tax credits that will expire by 2045. The Company also had $7.6 million and $5.9 million of foreign NOL carryforwards as of December 31, 2025 and 2024, respectively. As of December 31, 2025, the Company also had gross state NOLs of $1.77 billion of which $516.6 million will expire between 2034 and 2044, and the remainder can be carried forward indefinitely.
The Company’s valuation allowance of $0.5 million at both December 31, 2025 and 2024, primarily related to the Company’s deferred tax assets related to foreign tax credits in certain jurisdictions that, in the Company’s present estimation, more likely than not will not be realized.
Valuation allowances have been established where the Company has concluded that it is more likely than not that such deferred tax assets are not realizable. The Company’s ability to realize its remaining deferred tax assets as of December 31, 2025 was primarily dependent upon generating sufficient taxable income of the proper character in future years. Management has concluded that there was sufficient positive evidence to support the expected realization of these deferred tax assets primarily due to the fact that the excess of the fair market value of the Company’s bitcoin over the cost basis of the Company’s bitcoin as of December 31, 2025 resulted in a significant built-in gain for tax purposes and was therefore a
source of future taxable income that was expected to allow all of the U.S. net deferred tax assets to be realized. As part of the assessment of the amount of the valuation allowance, the Company considered that it had the ability and intent to execute tax planning strategies if necessary, including selling bitcoin with a built-in gain.
After consideration of all available evidence, the Company concluded that, as of December 31, 2025, it was more likely than not that its deferred tax assets, with the exception of certain foreign tax credits for which a valuation allowance had been established, would be realized. If the fair market value of bitcoin declines in future periods, the Company would need to assess other sources of forecasted taxable income of proper character, which could result in additional valuation allowances being recorded. If the fair market value of bitcoin declines to the point where the Company's cost basis in its bitcoin exceeds the fair market value, the deferred tax liability with respect to the unrealized gains would be reversed and a deferred tax asset for the unrealized loss would be recorded and the Company may be required to establish a valuation allowance against all of the Company's US federal and state deferred tax assets.
As of December 31, 2025 and 2024, the Company had income taxes payable of $1.8 million and $9.5 million, respectively, recorded in "Accounts payable, accrued expenses, and operating lease liabilities" in the Company’s Consolidated Balance Sheets. As of December 31, 2025 and 2024, the Company had income taxes receivable of $4.5 million and $7.1 million, respectively, recorded in " Prepaid expenses and other current assets" in the Company's Consolidated Balance Sheets.
As of December 31, 2025, the Company had gross unrecognized income tax benefits of $13.4 million, including accrued interest, $3.0 million of which was recorded in “Other long-term liabilities” and $10.4 million of which was recorded in “Deferred tax liability” in the Company’s Consolidated Balance Sheets. The change in unrecognized income tax benefits (in thousands) is presented in the table below for the periods indicated:
| 2025 | 2024 | 2023 | |||||||||||||||
| Unrecognized income tax benefits at beginning of year | $ | 10,053 | $ | 7,898 | $ | 5,811 | |||||||||||
| Increase (decrease) related to positions taken in prior period | 967 | 216 | 1458 | ||||||||||||||
| Increase related to positions taken in current period | 2,380 | 2,898 | 930 | ||||||||||||||
| Decrease related to settlement with tax authorities | — | — | — | ||||||||||||||
| Decrease related to expiration of statute of limitations | (373) | (959) | (301) | ||||||||||||||
| Unrecognized income tax benefits at end of year | 13,027 | 10,053 | 7,898 | ||||||||||||||
| Accrued interest | 348 | 195 | 352 | ||||||||||||||
| Gross unrecognized income tax benefits at end of year | $ | 13,375 | $ | 10,248 | $ | 8,250 | |||||||||||
If recognized, $13.4 million of the gross unrecognized income tax benefits as of December 31, 2025 would impact the Company’s effective tax rate. The Company recognizes estimated accrued interest related to unrecognized income tax benefits in the (benefit from) provision for income taxes. During the years ended December 31, 2025, 2024, and 2023, the Company released or recognized an immaterial amount of accrued interest. The amount of accumulated accrued interest related to the above unrecognized income tax benefits was approximately $0.3 million and $0.2 million as of December 31, 2025 and 2024, respectively.
The Company files tax returns in numerous foreign countries as well as in the United States, and its tax returns may be subject to audit by tax authorities in all jurisdictions in which it files. Each country has its own statute of limitations for assessing additional tax liabilities. As of December 31, 2025, the Company’s U.S. federal income tax return for tax year 2022 is under audit. The Company's U.S. federal income tax returns for tax years 2022 and forward remain subject to potential examination. However, due to the Company’s use of state NOL carryovers in the United States, state tax authorities may attempt to reduce or fully offset the amount of state NOL carryovers from tax years ended 2011 and forward that the Company utilized in later tax years. The Company’s major foreign tax jurisdictions and the tax years that remain subject to potential examination are Italy and Poland for tax years 2021 and forward; and Spain, Germany, and the United Kingdom for tax years 2022 and forward. To date there have been no material audit assessments related to any of the applicable foreign jurisdictions.
The Company previously disclosed that, given the potential magnitude of the unrealized gain on its digital assets, the Company expected that it could become subject to CAMT in future tax years. On September 30, 2025, the Treasury and IRS issued Interim Guidance which, in relevant part, clarifies that a corporation may disregard unrealized gains and losses on its digital asset holdings when computing AFSI (if such assets are measured at fair value for financial statement income purposes but are not marked to market for regular tax purposes) for purposes of determining whether it is subject to the CAMT. The Treasury and IRS intend to issue revised proposed regulations similar to the Interim Guidance. Pursuant to the Interim Guidance, the Company plans to exclude any unrealized gains and losses on its bitcoin holdings from the
calculation of its AFSI for purposes of determining whether the Company is subject to CAMT. As a result, the Company does not expect to become subject to CAMT due to unrealized gains on its bitcoin holdings, if anyHistorical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 19, 2026 | Showing above |
| 2024 | Feb 18, 2025 | |
| 2023 | Feb 15, 2024 | |
| 2022 | Feb 16, 2023 | |
| 2021 | Feb 16, 2022 | |
| 2020 | Feb 12, 2021 | |
| 2019 | Feb 14, 2020 | |
| 2018 | Feb 20, 2019 | |
| 2017 | Feb 7, 2018 | |
| 2016 | Feb 10, 2017 | |
| 2015 | Feb 26, 2016 | |
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.