Praxis Precision Medicines, Inc.PRAX
Praxis Precision Medicines, Inc. Income Taxes Disclosure
Income Taxes
The Company maintains a full valuation allowance on its U.S. net deferred tax assets due to the uncertainty of future taxable income. The Company did not recognize any income tax benefit in the years ended December 31, 2025, 2024, and 2023 related to its U.S. operations due to the uncertainty regarding future taxable income. In the years ended December 31, 2025, 2024, and 2023, the difference between the statutory tax rate in the U.S. and the Company’s effective tax rate was due primarily to the valuation allowance recorded to offset any potential tax benefit.
Income before provision for income taxes was as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | (302,839) | $ | (182,743) | $ | (123,013) | |||||||||||
| Foreign | 42 | — | — | ||||||||||||||
| Income before income taxes | $ | (302,797) | $ | (182,743) | $ | (123,013) | |||||||||||
The components of provision for income taxes for all periods presented were as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| State | $ | 471 | $ | 76 | $ | 45 | |||||||||||
| Total provision | $ | 471 | $ | 76 | $ | 45 | |||||||||||
A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes after the adoption of ASU 2023-09 is as follows:
| Year Ended December 31, | |||||||||||
| 2025 | |||||||||||
| Federal statutory income tax rate | (63,587) | 21.0 | % | ||||||||
State and local income tax, net of federal income tax effect (1) | 417 | (0.1) | % | ||||||||
| Foreign tax effects | |||||||||||
| Other foreign jurisdictions | (9) | — | % | ||||||||
| Non-taxable or non-deductible items | 7 | — | % | ||||||||
| Stock-based compensation | (3,337) | 1.1 | % | ||||||||
| Limitation on executive compensation | 5,508 | (1.8) | % | ||||||||
| Tax credits | (12,853) | 4.2 | % | ||||||||
| Change in valuation allowance | 74,260 | (24.5) | % | ||||||||
| Other items | 65 | — | % | ||||||||
| Effective income tax rate | $ | 471 | (0.2) | % | |||||||
(1) The state that makes up the majority of the effect of the state and local income tax line item is Massachusetts.
A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes for years prior to the adoption of ASU 2023-09 is as follows:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Federal statutory income tax rate | 21.0 | % | 21.0 | % | |||||||
| Federal and state research and development credits | 3.9 | % | 3.5 | % | |||||||
| State taxes, net of federal benefit | 3.5 | % | 4.3 | % | |||||||
| Changes in tax rates | (3.2) | % | 2.9 | % | |||||||
| Non-deductible executive compensation | (2.6) | % | (1.4) | % | |||||||
| Non-deductible items | (0.8) | % | — | % | |||||||
| Stock-based compensation | (0.9) | % | (1.3) | % | |||||||
| Change in valuation allowance | (20.7) | % | (29.7) | % | |||||||
| Other | (0.2) | % | 0.7 | % | |||||||
| Effective income tax rate | — | % | — | % | |||||||
Net deferred tax assets consisted of the following (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 170,157 | $ | 90,108 | |||||||
| Capitalized research expenditures | 59,250 | 65,836 | |||||||||
| Tax credits | 44,210 | 30,582 | |||||||||
| Amortization | 19,035 | 20,600 | |||||||||
| Stock-based compensation | 9,508 | 8,784 | |||||||||
| Accrued expenses | 4,441 | 2,333 | |||||||||
| Leases | 28 | 344 | |||||||||
| Total gross deferred tax assets | 306,629 | 218,587 | |||||||||
| Less: Valuation allowance | (306,606) | (218,303) | |||||||||
| Net deferred tax assets | $ | 23 | $ | 284 | |||||||
| Deferred tax liabilities: | |||||||||||
| Operating lease right-of-use asset | (23) | (284) | |||||||||
| Total gross deferred tax liabilities | (23) | (284) | |||||||||
| Net deferred tax assets | $ | — | $ | — | |||||||
As of December 31, 2025 and 2024, the Company had U.S. federal net operating loss carryforwards which may be able to offset future income tax liabilities of approximately $657.2 million and $342.4 million, respectively. Federal net operating loss carryforwards of $7.7 million will expire at various dates from 2035 through 2037 and approximately $649.5 million may be carried forward indefinitely. As of December 31, 2025 and 2024, the Company also had state net operating loss carryforwards of approximately $515.6 million and $289.7 million, respectively, which may be available to offset future income tax liabilities and expire at various dates from 2031 through 2045.
As of December 31, 2025 and 2024, the Company had federal research and development tax credit and orphan drug tax credit carryforwards of approximately $40.2 million and $27.3 million, respectively, available to reduce future tax liabilities which expire at various dates from 2039 through 2045. As of December 31, 2025 and 2024, the Company had state research and development tax credit carryforwards of approximately $5.1 million and $4.1 million, respectively, available to reduce future tax liabilities which expire at various dates from 2032 through 2040. The Company has generated research and orphan drug tax credits but has not conducted a study to document the qualified activity. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed, and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development credits and, if a deferred tax asset adjustment is required, this adjustment would be offset by the valuation allowance.
Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the
time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. Further, until a study is completed by the Company and any limitation is known, no amounts are being presented as an uncertain tax position.
ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all of the evidence, both positive and negative, the Company has recorded a valuation allowance against its deferred tax assets at December 31, 2025 and 2024 because management has determined that it is more likely than not that the Company will not recognize the benefits of its federal and state deferred tax assets, primarily due to its history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception. As a result, a valuation allowance of $306.6 million and $218.3 million has been established at December 31, 2025 and 2024, respectively. Management reevaluates the positive and negative evidence at each reporting period. The valuation allowance increased by approximately $88.3 million and $37.8 million during the years ended December 31, 2025 and 2024, respectively, due primarily to the generation of net operating losses.
The Company has not recorded any amounts for unrecognized tax benefits as of December 31, 2025 and 2024. The Company’s policy is to record interest and penalties related to uncertain tax positions as part of its income tax provision. As of December 31, 2025 and 2024, the Company had no accrued interest or penalties related to uncertain tax positions and no such amounts have been recognized in the Company’s consolidated statement of operations for the years ended December 31, 2025, 2024, and 2023. The statute of limitations for federal and the majority of state tax authorities is open for tax years ended December 31, 2022 through December 31, 2025. The statute of limitation for the remaining state tax authorities is open for tax years ended December 31, 2021 through December 31, 2025. Since the Company is in a net loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available.
The amounts of cash income taxes paid by the Company were as follows:
| Year Ended December 31, | |||||
| 2025 | |||||
| State | $ | 224 | |||
| Total | $ | 224 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 19, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Mar 5, 2024 | |
| 2022 | Feb 7, 2023 | |
| 2021 | Feb 28, 2022 | |
| 2020 | Mar 17, 2021 | |
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.