Prelude Therapeutics Inc Income Taxes Disclosure
12. Income Taxes
For the years ended December 31, 2025 and 2024, the Company recorded a provision for income taxes of $0.
The Company's loss before income taxes in the United States ("U.S.") for the years ended December 31, 2025 and 2024 was $99.5 million and $127.2 million, respectively. The Company has no foreign operations.
The Company adopted ASU 2023-09 prospectively in the 2025 reporting period. The prior year rate reconciliation presentation has not been recast and is, therefore, not comparable to the current year presentation. A reconciliation of the U.S. federal statutory income tax rate to the Company's effective tax rate pursuant to the disclosure requirements of ASU 2023-09 is as follows (in millions, except for percentages):
|
|
Year ended |
||||||||||||
|
|
2025 |
|
2024 |
||||||||||
U.S. federal statutory income tax rate |
|
$ |
(20,894 |
) |
|
|
21.0 |
|
% |
|
|
21.0 |
|
% |
State and local income taxes, net of federal income tax effect (1) |
|
|
- |
|
|
|
- |
|
|
|
|
6.6 |
|
|
Tax credits |
|
|
|
|
|
|
|
|
|
|
|
|||
Federal research and development |
|
|
(4,531 |
) |
|
|
4.6 |
|
|
|
|
2.4 |
|
|
Changes in valuation allowance |
|
|
23,218 |
|
|
|
(23.4 |
) |
|
|
|
(27.5 |
) |
|
Nontaxable or nondeductible items |
|
|
|
|
|
|
|
|
|
|
|
|||
Other permanent differences |
|
|
833 |
|
|
|
(0.8 |
) |
|
|
|
(1.0 |
) |
|
Other adjustments |
|
|
|
|
|
|
|
|
|
|
|
|||
Share-based compensation |
|
|
1,374 |
|
|
|
(1.4 |
) |
|
|
|
(1.5 |
) |
|
Effective tax rate |
|
$ |
- |
|
|
|
- |
|
% |
|
|
- |
|
% |
(1) Greater than 50% of the state and local taxes, net of federal income tax effect, is attributable to the State of Delaware.
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities were as follows:
|
|
December 31, |
|
|||||
(in thousands) |
|
2025 |
|
|
2024 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Net operating loss carryforwards |
|
$ |
112,873 |
|
|
$ |
81,520 |
|
Research and development credits |
|
|
28,199 |
|
|
|
23,668 |
|
Research and development capitalization |
|
|
41,784 |
|
|
|
59,341 |
|
Stock-based compensation |
|
|
15,709 |
|
|
|
15,312 |
|
Accrued expenses and other |
|
|
13,064 |
|
|
|
2,783 |
|
Lease liabilities |
|
|
4,961 |
|
|
|
5,033 |
|
Gross deferred tax assets |
|
|
216,590 |
|
|
|
187,657 |
|
Less: valuation allowance |
|
|
(211,904 |
) |
|
|
(182,642 |
) |
Total deferred tax asset |
|
|
4,686 |
|
|
|
5,015 |
|
Deferred tax liability |
|
|
|
|
|
|
||
Right-of-use assets |
|
|
(4,304 |
) |
|
|
(4,595 |
) |
Depreciation |
|
|
(382 |
) |
|
|
(420 |
) |
Total deferred tax liabilities |
|
|
(4,686 |
) |
|
|
(5,015 |
) |
Net deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
The deferred tax assets, net of valuation allowance of $4.7 million and $5.0 million as of December 31, 2025 and 2024, respectively, primarily consists of net operating loss, tax credit carryforwards and capitalized research and development expenses for income tax purposes. As required by the 2017 Tax Cuts and Jobs Act, effective January 1, 2022, the Company's research and development expenditures were capitalized, resulting in a deferred tax asset. As amended by the One Big Beautiful Bill Act (OBBBA), effective July 2025, the Company’s current year US research and development expenditures were deducted resulting in a reduction of the capitalized R&D deferred tax asset. Due to the Company's history of operating losses, the Company recorded a valuation allowance on its net deferred tax assets by increasing the valuation allowance by $29.3 million and $35.0 million during the years ended December 31, 2025 and 2024, respectively, as it was more likely than not that such tax benefits will not be realized.
The following table summarizes carryforwards of federal and state net operating losses (“NOL”) and research tax credits:
|
|
December 31, |
|
|||||
(in thousands) |
|
2025 |
|
|
2024 |
|
||
NOL carryforwards - Federal |
|
$ |
432,626 |
|
|
$ |
292,193 |
|
NOL carryforwards - State |
|
|
320,831 |
|
|
|
293,621 |
|
Research tax credits - Federal |
|
|
28,166 |
|
|
|
23,634 |
|
Research tax credits - State |
|
|
43 |
|
|
|
43 |
|
At December 31, 2025, the Company had federal net operating loss (NOL) carryforwards for income tax purposes of approximately $432.6 million and federal tax credit carryforwards of $28.2 million. The NOL carryforwards begin expiring in 2036 for federal and Delaware state income tax purposes; however, all federal, Delaware state, and Kansas state NOL carryforwards generated subsequent to January 1, 2018, can be carried forward indefinitely. The NOL carryforwards begin expiring in 2037 and 2042 for Tennessee and Massachusetts, respectively. As of December 31, 2025, the Company also had federal and Delaware research and development tax credit carryforwards of $28.2 million and $43 thousand, respectively, that will begin to expire in 2039 and 2031, respectively, unless previously utilized.
The NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders 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. To date, the Company has not performed an analysis to determine whether ownership changes have occurred since inception. Delaware state NOLs may also be limited.
As of December 31, 2025, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations. Due to NOL and tax credit carry-forwards that remain unutilized, income tax returns for all tax years remain subject to examination by the taxing jurisdictions. The NOL carryforwards remain subject to review until utilized.
During the years ended December 31, 2025 and 2024, the Company did not have any significant income taxes paid.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 10, 2026 | Showing above |
| 2024 | Mar 10, 2025 | |
| 2023 | Feb 15, 2024 | |
| 2022 | Mar 15, 2023 | |
| 2021 | Mar 17, 2022 | |
| 2020 | Mar 16, 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.