Stagwell IncSTGW
Stagwell Inc Income Taxes Disclosure
17. Income Taxes
On December 14, 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 amends ASC 740, Income Taxes to expand income tax disclosures and requires that the Company disclose (i) the income tax rate reconciliation using both percentages and reporting currency amounts; (ii) specific categories within the income tax rate reconciliation; (iii) additional information for reconciling items that meet a quantitative threshold; (iv) the composition of state and local income taxes by jurisdiction; and (v) the amount of income taxes paid disaggregated by jurisdiction. The Company adopted ASU 2023-09 for the year ended December 31, 2025 on a prospective basis.
The components of the Company’s income before income taxes and equity in earnings of non-consolidated affiliates by taxing jurisdiction for the years ended December 31 were:
| 2025 | 2024 | 2023 | |||||||||||||||
| Income (Loss): | |||||||||||||||||
| U.S. | $ | 58,405 | $ | 36,368 | $ | 66,432 | |||||||||||
| Non-U.S. | 10,381 | 1,355 | 24,637 | ||||||||||||||
| $ | 68,786 | $ | 37,723 | $ | 91,069 | ||||||||||||
The provision (benefit) for income taxes by taxing jurisdiction for the years ended December 31 were:
| 2025 | 2024 | 2023 | |||||||||||||||
| Current tax provision | |||||||||||||||||
| U.S. federal | $ | 2,821 | $ | 7,139 | $ | 4,868 | |||||||||||
| U.S. state and local | 2,198 | 4,359 | 3,103 | ||||||||||||||
| Non-U.S. | 22,813 | 12,370 | 13,143 | ||||||||||||||
| 27,832 | 23,868 | 21,114 | |||||||||||||||
| Deferred tax provision (benefit): | |||||||||||||||||
| U.S. federal | 10,673 | 607 | 18,168 | ||||||||||||||
| U.S. state and local | 1,378 | 248 | 7,017 | ||||||||||||||
| Non-U.S. | (1,612) | (11,541) | (5,742) | ||||||||||||||
| 10,439 | (10,686) | 19,443 | |||||||||||||||
| Income tax expense | $ | 38,271 | $ | 13,182 | $ | 40,557 | |||||||||||
Our effective income tax rate for the year ended December 31, 2025 (dollars in thousands) is as follows:
| 2025 | % | ||||||||||
| Tax expense, at U.S. federal statutory rate | $ | 14,445 | 21.0 | % | |||||||
State and local income taxes (net of federal benefit) (1) | 3,129 | 4.6 | % | ||||||||
| Foreign tax effects | |||||||||||
| Canada | 4,189 | 6.1 | % | ||||||||
| United Kingdom | 5,672 | 8.3 | % | ||||||||
| Other foreign jurisdictions | 9,098 | 13.2 | % | ||||||||
| Effects of cross-border tax laws | 1,191 | 1.7 | % | ||||||||
| Tax credits | 1,663 | 2.4 | % | ||||||||
| Changes in valuation allowance | 1,824 | 2.7 | % | ||||||||
| Non-taxable or non-deductible Items | |||||||||||
| Deferred acquisition consideration expense | (5,560) | (8.1) | % | ||||||||
| Other | 1,707 | 2.5 | % | ||||||||
| Changes in unrecognized benefits | 268 | 0.4 | % | ||||||||
| Other | 645 | 0.8 | % | ||||||||
| Tax expense, at effective tax rate | $ | 38,271 | 55.6 | % | |||||||
(1) State taxes in New York (including local taxes in New York City) and California made up the majority (greater than 50 percent) of the tax effect in this category.
Our effective income tax rate for the years ended December 31, 2024 and 2023 (dollars in thousands) is as follows:
| 2024 | 2023 | ||||||||||
| Income before income taxes, equity in non-consolidated affiliates and noncontrolling interest | $37,723 | $91,069 | |||||||||
| Statutory income tax rate | 21.0 | % | 21.0 | % | |||||||
| Tax expense using U.S. statutory income tax rate | $7,922 | $19,124 | |||||||||
| Impact of disregarded entity structure | (3,384) | (8,520) | |||||||||
| Foreign, net | 1,208 | (3,684) | |||||||||
| State taxes, net | 3,701 | 8,422 | |||||||||
| Stock compensation | 2,244 | 400 | |||||||||
| Valuation allowance | 5,198 | 11,791 | |||||||||
| Deferred acquisition consideration adjustments | (2,079) | 1,299 | |||||||||
| Revaluation of TRA step up | — | (424) | |||||||||
| Gain on sale of business | — | 8,347 | |||||||||
| Prior year adjustments | (3,464) | 5,617 | |||||||||
| Other, net | 1,836 | (1,815) | |||||||||
| Income tax expense | $13,182 | $40,557 | |||||||||
| Effective income tax rate | 34.9 | % | 44.5 | % | |||||||
The Company is a corporation with an investment in a limited liability company classified as a partnership for U.S. federal income tax purposes, and as such a portion of the consolidated income derived through the effective date of the Class C Exchange in 2025 is not subject to taxes from a U.S. federal income tax perspective. The tax rate of 21.0% has been used to capture the U.S. federal taxes of the Company and the corporations owned by the Company and recorded in the Consolidated Statements of Operations and Comprehensive Income.
Income taxes receivable were $28.2 million and $27.0 million as of December 31, 2025 and 2024, respectively, and were included in Other current assets on the Consolidated Balance Sheets. Long-term income taxes receivable were $10.9 million and $10.4 million as of December 31, 2025 and 2024, and were included in Other assets on the Consolidated Balance Sheets. Income taxes payable were $16.1 million and $12.1 million as of December 31, 2025 and 2024, respectively, and were included in Accruals and other liabilities on the Consolidated Balance Sheets.
The tax effects of significant temporary differences representing deferred tax assets and liabilities as of December 31 were as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| Deferred tax assets: | |||||||||||||||||
| Net operating losses | $ | 64,721 | $ | 38,482 | $ | 29,835 | |||||||||||
| Tax credits | 5,203 | 6,719 | 6,355 | ||||||||||||||
| Operating lease liability | 73,725 | 44,356 | 50,657 | ||||||||||||||
| Interest deductions | 41,591 | 37,384 | 36,618 | ||||||||||||||
| Accruals and other liabilities | 1,812 | 1,010 | 252 | ||||||||||||||
| TRA and related step-up, net of amortization | 285,538 | 27,335 | 29,007 | ||||||||||||||
| Other | 16,003 | 8,128 | 13,568 | ||||||||||||||
| Gross deferred tax asset | 488,593 | 163,414 | 166,292 | ||||||||||||||
| Less: valuation allowance | (43,060) | (30,583) | (26,288) | ||||||||||||||
| Net deferred tax assets | $ | 445,533 | $ | 132,831 | $ | 140,004 | |||||||||||
| Deferred tax liabilities: | |||||||||||||||||
| Right-of-use lease asset - operating leases | 54,631 | 33,163 | 38,261 | ||||||||||||||
| Property and equipment, net | 9,358 | 5,065 | 11,553 | ||||||||||||||
| Goodwill and intangibles | 155,213 | 94,126 | 83,335 | ||||||||||||||
| Other | — | 790 | 205 | ||||||||||||||
| Total deferred tax liabilities | 219,202 | 133,144 | 133,354 | ||||||||||||||
| Net deferred tax asset (liability) | $ | 226,331 | $ | (313) | $ | 6,650 | |||||||||||
| Deferred tax assets | $ | 281,057 | $ | 46,926 | $ | 47,159 | |||||||||||
| Deferred tax liabilities | (54,726) | (47,239) | (40,509) | ||||||||||||||
| $ | 226,331 | $ | (313) | $ | 6,650 | ||||||||||||
Tax Receivables Agreement (“TRA”)
In connection with the Class C Exchange, we entered into the TRA with OpCo and Stagwell Media, pursuant to which we are required to make cash payments to Stagwell Media equal to 85% of certain U.S. federal, state and local income tax or franchise tax savings, if any, that we actually realize, or in certain circumstances are deemed to realize, as a result of (i) increases in the tax basis of OpCo’s assets resulting from exchanges of Paired Units (defined in Note 14 ) for shares of Class A Common Stock or cash, as applicable, and (ii) certain other tax benefits related to us making payments under the TRA.
Effective April 4, 2025, all Paired Units were exchanged for Class A Shares in the Class C Exchange. As a result of the Class C Exchange, the Company recorded an increase to deferred tax asset of $237.9 million and an increase to TRA liability of $229.7 million. As of December 31, 2025, the Company has recorded a TRA liability of $254.9 million, and an associated deferred tax asset, net of amortization, of $285.5 million, in connection with the exchange of Paired Units and the projected obligations under the TRA.
Our deferred tax assets from operating and capital losses, foreign tax credits, and state credits will expire as follows:
| Stagwell Inc. | Consolidated Corporate Subsidiaries | Total | |||||||||||||||
| Federal | |||||||||||||||||
| Operating losses expiring between 2033-2037 | $ | — | $ | 2,552 | $ | 2,552 | |||||||||||
| Indefinite operating losses | 11,553 | 8,637 | 20,190 | ||||||||||||||
| Capital losses expiring 2030 | 1,202 | — | 1,202 | ||||||||||||||
| State | |||||||||||||||||
| Operating losses expiring between 2026-2043 | 32 | 468 | 500 | ||||||||||||||
| Indefinite operating losses | 5,368 | 1,800 | 7,168 | ||||||||||||||
| Foreign | |||||||||||||||||
| Operating losses expiring between 2026-2045 | — | 12,922 | 12,922 | ||||||||||||||
| Indefinite operating losses | — | 21,388 | 21,388 | ||||||||||||||
| Tax Credits | |||||||||||||||||
| Foreign Tax Credits expiring between 2026-2043 | 4,236 | — | 4,236 | ||||||||||||||
| Other Tax Credits expiring between 2026-2030 | 967 | — | 967 | ||||||||||||||
| $ | 23,358 | $ | 47,767 | $ | 71,125 | ||||||||||||
The majority of the consolidated corporate subsidiaries’ U.S. tax attributes are subject to an annual limitation as a result of historic acquisitions which constituted a change of ownership as defined under Internal Revenue Code 382.
The Company records a valuation allowance against deferred income tax assets when management believes it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Management evaluates all positive and negative evidence and considers factors such as the reversal of taxable temporary differences, taxable income in eligible carryback years, future taxable income, and tax planning strategies. A change to these factors could impact the estimated valuation allowance and income tax expense.
The Company maintained a valuation allowance of $43.1 million as of December 31, 2025, relating to both U.S. and foreign deferred tax assets, and $30.6 million as of December 31, 2024 relating to U.S. and foreign deferred tax assets.
The Company is permanently reinvested with respect to its foreign earnings in certain jurisdictions, and no deferred taxes have been recorded related to such earnings as the determination of the amount is not practicable. The Company currently does not intend to distribute this previously taxed income. Upon distribution in the future, the Company may incur state and foreign withholding taxes on such income, the amount of which is not practicable to compute.
As of December 31, 2025 and 2024, the Company recorded a liability for unrecognized tax benefits as well as applicable penalties and interest in the amount of $4.7 million and $2.1 million, respectively. If these unrecognized tax benefits were to be recognized, it would affect the Company’s effective tax rate.
It is the Company’s policy to classify interest and penalties arising in connection with unrecognized tax benefits as a component of income tax expense. As of December 31, 2025 and 2024, accrued penalties and interest included in unrecognized tax benefits were $2.6 million and $2.1 million, respectively.
A reconciliation of the change in unrecognized tax benefits exclusive of penalties and interest is as follows:
| 2025 | 2024 | ||||||||||
| A reconciliation of the change in unrecognized tax benefits is as follows: | |||||||||||
| Unrecognized tax benefit - Beginning Balance | $ | 9 | $ | 9 | |||||||
| Current year positions | — | — | |||||||||
| Prior period positions | — | — | |||||||||
| Additions related to acquisitions | 2,026 | — | |||||||||
| Settlements | — | — | |||||||||
| Lapse of statute of limitations | — | — | |||||||||
| Unrecognized tax benefits - Ending Balance | $ | 2,035 | $ | 9 | |||||||
The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. The statute of limitations for tax years prior to 2022 are closed for U.S. federal purposes. The statute of limitations for tax years prior to 2015 have also expired in non-U.S. jurisdictions.
Income taxes paid (net of refunds) for the year ended December 31, 2025 were as follows:
Income Taxes Paid | |||||
U.S. federal | $ | (444) | |||
New York State | (1,921) | ||||
Other U.S. state & local | 440 | ||||
Foreign Taxes | |||||
Canada | 6,872 | ||||
Germany | 2,074 | ||||
Saudi Arabia | 3,539 | ||||
United Kingdom | 4,204 | ||||
Other Foreign Jurisdictions | 8,188 | ||||
Total Cash Taxes Paid | $ | 22,952 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 13, 2026 | Showing above |
| 2024 | Mar 11, 2025 | |
| 2023 | Mar 11, 2024 | |
| 2022 | Mar 6, 2023 | |
| 2021 | Mar 17, 2022 | |
| 2020 | Mar 16, 2021 | |
| 2019 | Mar 5, 2020 | |
| 2018 | Mar 18, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Mar 1, 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.