Stoke Therapeutics, Inc. Income Taxes Disclosure

11. Income taxes

During the years ended December 31, 2025 and 2024, state tax in Massachusetts made up the majority of the tax effect in the "State and local income tax" category.

The reconciliation tax bill, commonly known as the “One Big Beautiful Bill Act” (OBBBA) was into law July 4, 2025, which is considered the enactment date under U.S. generally accepted accounting principal (GAAP). Based on the OBBBA, the Company will make a method change to accelerate unamortized domestic R&D amounts ratably over the 2025 and 2026 taxable years. As a result of this implementation, the Company's deferred tax assets as of December 31, 2025 reflects the change in tax treatment for these expenditures.

In accordance with ASC 740, Accounting for Income Taxes, management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and has determined that it is more likely than not that the Company will not recognize the net benefits of federal and state deferred tax assets. A full valuation allowance of

$161.1 million and $165.6 million was established at December 31, 2025 and 2024, respectively. The change in the valuation allowance was a decrease of $4.5 million and an increase of $32.3 million in 2025 and 2024, respectively.

As of December 31, 2025, and 2024, the Company had federal NOL carryforwards of $301.7 million and $242.1 million, respectively, which may be available to reduce future taxable income. The Company's Federal NOLs were generated after December 31, 2018 and carryforward indefinitely. As of December 31, 2025, and 2024, the Company had state NOLs of $329.2 million and $261.5 million, respectively, which may be available to reduce future taxable income. The state NOLs expire at various dates beginning in 2035.

As of December 31, 2025 and 2024, the Company had federal research and development tax credit (“R&D Credit”) carryforwards of $21.3 million and $15.3 million, respectively, and state R&D Credit carryforwards of $10.5 million and $8.4 million, respectively. Both federal and state R&D Credit carryforwards may be available to reduce future tax liabilities and expire at various dates beginning in 2034.

The Internal Revenue Code of 1986, as amended (“IRC”), provides for a limitation of the annual use of NOLs, R&D Credits, and other tax attributes following certain ownership changes that could limit our ability to utilize NOL and R&D Credit carryforwards. Under IRC Sections 382 and 383 an ownership change is generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period. The Company has experienced ownership changes in the past and based on the existing Section 382 limitations, $0.9 million and $0.02 million of existing Federal NOLs and R&D credits, respectively, will not be utilizable. The Company may experience additional ownership changes in the future because of subsequent shifts in our stock ownership. As a result, our ability to use our pre-change NOLs to offset taxable income, if any, is subject to limitations, which could potentially result in increased future tax liability. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

The Company applies ASC 740 related to accounting for uncertainty in income taxes. The Company’s reserves related to income taxes are based on a determination of whether, and how much of, a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit. At December 31, 2025, and 2024 the Company had no unrecognized tax benefits. Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as income tax expense in the accompanying consolidated statements of operations and comprehensive loss.

The Company files U.S. federal and state income tax returns with varying statute of limitations. As of the year ended December 31, 2025, there is no examination by U.S. tax authorities. Due to the Company’s net operating loss carryforwards, federal income tax returns from incorporation are still subject to examination. The Company files in several state tax jurisdictions and is subject to examination in years ranging from incorporation to 2025. To the extent that the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the IRS and the state tax authorities to the extent utilized in a future period.