Nextdoor Holdings, Inc.NXDR
Nextdoor Holdings, Inc. Income Taxes Disclosure
Income Taxes
(1) State taxes in Texas made up the majority of this category.
Loss before income taxes were as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | (53,007) | $ | (97,992) | $ | (147,786) | |||||||||||
| Foreign | 428 | 635 | 777 | ||||||||||||||
| Loss before income taxes | $ | (52,579) | $ | (97,357) | $ | (147,009) | |||||||||||
Provision for income taxes was as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State | 237 | 165 | 74 | ||||||||||||||
| Foreign | 541 | 605 | 1,321 | ||||||||||||||
Total current income tax expense | 778 | 770 | 1,395 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | — | — | — | ||||||||||||||
| State | — | — | — | ||||||||||||||
| Foreign | 847 | (64) | (639) | ||||||||||||||
Total deferred income tax expense (benefit) | 847 | (64) | (639) | ||||||||||||||
Total income tax expense (benefit) | $ | 1,625 | $ | 706 | $ | 756 | |||||||||||
The table below provides the updated requirements of ASU 2023-09 for the year ended December 31, 2025. See Note 2. Summary of Significant Accounting Policies—Recent accounting pronouncements for additional details on the adoption of ASU 2023-09.
Income tax expense (benefit) differed from the amount computed by applying the federal statutory income tax rate to pretax loss for the year ended December 31, 2025 as a result of the following (in thousands, except percentages):
| Year Ended December 31, 2025 | |||||||||||
Provision (benefit) for income taxes at U.S. Federal statutory rate | $ | (11,042) | (21.0) | % | |||||||
State and local income tax, net of federal benefit(1) | 187 | 0.4 | |||||||||
U.S. Federal: | |||||||||||
Research and development tax credits | (2,832) | (5.4) | |||||||||
Non-taxable or non-deductible items: | |||||||||||
| Executive and equity compensation | 3,997 | 7.6 | |||||||||
| Other | 568 | 1.1 | |||||||||
| Changes in valuation allowance | 9,747 | 18.5 | |||||||||
| Foreign tax effects | 468 | 0.9 | |||||||||
Unrecognized tax benefit and related items | 532 | 1.0 | |||||||||
| Total tax provision and effective tax rate | $ | 1,625 | 3.1 | % | |||||||
The Company's effective tax rate of 3.1% for the year ended December 31, 2025 was primarily driven by the full valuation allowance, stock-based compensation, research and development credits, and foreign tax effects.
As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the effective income tax rate differs from the statutory Federal income tax rate as follows:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Statutory rate | (21.0) | % | (21.0) | % | |||||||
| Stock-based compensation | 9.2 | 5.8 | |||||||||
Research and development tax credits | (3.7) | (3.2) | |||||||||
| Changes in valuation allowance | 15.7 | 18.0 | |||||||||
| Other | 0.5 | 0.9 | |||||||||
| Effective tax rate | 0.7 | % | 0.5 | % | |||||||
The Company's effective tax rates were 0.7% and 0.5% for the years ended December 31, 2024 and 2023, respectively. The effective tax rates for these periods were primarily driven by the full valuation allowance, stock-based compensation, research and development credits, and foreign tax effects.
Tax effects of significant items comprising the Company’s deferred taxes were as follows (in thousands):
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
Net operating losses | $ | 144,432 | $ | 128,783 | |||||||
| Credit carryforwards | 20,847 | 17,193 | |||||||||
Stock-based compensation | 5,005 | 5,285 | |||||||||
| Lease liability | 7,911 | 9,894 | |||||||||
Capitalized research and development | 18,088 | 24,437 | |||||||||
Other | 5,084 | 6,298 | |||||||||
| Total deferred tax assets | 201,367 | 191,890 | |||||||||
| Valuation allowance | (198,364) | (187,437) | |||||||||
| Total deferred tax assets, net | 3,003 | 4,453 | |||||||||
| Deferred tax liabilities: | |||||||||||
ROU asset basis | (2,839) | (3,508) | |||||||||
| Total deferred tax liabilities | (2,839) | (3,508) | |||||||||
| Net deferred tax assets | $ | 164 | $ | 945 | |||||||
Based upon available objective evidence, it is more likely than not that the U.S. net deferred tax assets will not be realized. Accordingly, the Company has established a full valuation allowance for its U.S. net deferred tax assets. The valuation allowance increased by $10.9 million and $5.6 million, respectively, during 2025 and 2024.
Activity related to the Company’s valuation allowance considered the following (in thousands):
As of December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Balance, beginning of period | $ | 187,437 | $ | 181,884 | $ | 150,294 | |||||||||||
Charged to expenses | 10,927 | 5,553 | 31,590 | ||||||||||||||
Balance, end of period | $ | 198,364 | $ | 187,437 | $ | 181,884 | |||||||||||
As of December 31, 2025, the Company had federal net operating loss carryforwards of $583.9 million, which begin to expire in 2028, and state net operating loss carryforwards of $365.5 million, which begin to expire in 2026. Of the $583.9 million U.S. federal net operating losses $404.8 million is carried forward indefinitely but is limited to 80% of current year taxable income. As of December 31, 2025, the Company had federal tax credits of $18.5 million, which begin to expire in 2028, and state tax credits of $10.2 million, which do not expire. The Internal Revenue Code (“IRC”) limits the amount of net operating loss carryforwards that a company may use in a given year in the event of certain cumulative changes in ownership over a three-year period as described in
Section 382 of the IRC. Utilization of net operating loss carryforwards and credits may be subject to annual limitation due to the ownership change limitations provided by the IRC, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.
The Company accounts for uncertainty in income taxes in accordance with ASC 740 Income Taxes. Tax positions are evaluated in a two-step process, whereby the Company first determines whether it is more likely than not that a tax position will be sustained upon examination by the tax authority, including resolutions of any related appeals or litigation processes, based on technical merit. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.
A reconciliation of the beginning and ending balances of unrecognized tax benefit were as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Gross unrecognized tax benefits - beginning of year | $ | 5,633 | $ | 22,613 | $ | 18,564 | |||||||||||
| Increases related to current year tax positions | 745 | 771 | 4,408 | ||||||||||||||
| Increases related to prior year tax positions | 133 | 152 | 241 | ||||||||||||||
Decreases related to prior year tax positions | (35) | (17,903) | (600) | ||||||||||||||
| Gross unrecognized tax benefits - end of year | $ | 6,476 | $ | 5,633 | $ | 22,613 | |||||||||||
The amount of the Company's unrecognized tax benefits that would affect the Company's effective tax rate, if recognized, is $0.4 million.
The Company has net operating losses in the United States federal and various state jurisdictions for which the tax years beginning in 2007 are open to examination by applicable taxing authorities.
Income taxes paid during the year ended December 31, 2025 were $0.5 million, consisting primarily of foreign and state taxes.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 18, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
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.