Tenaya Therapeutics, Inc. Income Taxes Disclosure
Note 9. Income Taxes
No provision for or benefit from income taxes was recorded during the years ended December 31, 2024 and 2023. The Company has established a full valuation allowance against its net deferred tax assets due to the uncertainty regarding the realization of such assets. All losses to date have been incurred in the United States. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating losses and tax credit carryforwards.
Effective Tax Rate Reconciliation
The effective tax rate of the Company’s provision for income taxes differs from the federal statutory rate and the effective tax rate reconciliation is as follows:
|
|
December 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
U.S. federal taxes at statutory rate |
|
|
21.0 |
% |
|
|
21.0 |
% |
State taxes (net of federal benefit) |
|
|
1.0 |
|
|
|
1.2 |
|
Credits |
|
|
2.7 |
|
|
|
3.7 |
|
Stock-based compensation |
|
|
(0.2 |
) |
|
|
(0.3 |
) |
Change in valuation allowance |
|
|
(22.6 |
) |
|
|
(24.4 |
) |
Other |
|
|
(1.9 |
) |
|
|
(1.2 |
) |
Total |
|
—% |
|
|
—% |
|
||
Deferred Income Taxes
The tax effects of significant items comprising the Company’s deferred income taxes are as follows:
|
|
December 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In thousands) |
|
|||||
Deferred tax assets: |
|
|
|
|
|
|
||
Net operating losses |
|
$ |
66,609 |
|
|
$ |
52,757 |
|
Capitalized research and development expenditure |
|
|
36,151 |
|
|
|
29,318 |
|
Tax credits |
|
|
19,292 |
|
|
|
15,047 |
|
Stock-based compensation |
|
|
3,624 |
|
|
|
2,880 |
|
Lease Liability |
|
|
2,862 |
|
|
|
2,613 |
|
Accrued expenses and other |
|
|
1,188 |
|
|
|
1,713 |
|
Total deferred tax assets |
|
|
129,726 |
|
|
|
104,328 |
|
Valuation allowance |
|
|
(126,332 |
) |
|
|
(101,290 |
) |
Deferred tax assets, net of valuation allowance |
|
|
3,394 |
|
|
|
3,038 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
||
Right-of-use asset |
|
|
(2,500 |
) |
|
|
(2,098 |
) |
Property and equipment |
|
|
(894 |
) |
|
|
(940 |
) |
Net deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
Beginning January 1, 2022, the Tax Cuts and Jobs Act eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to capitalize such expenses pursuant to Internal Revenue Code (IRC) Section 174. The capitalized expenses are amortized over a 5-year period for domestic expenses and a 15-year period for foreign expenses.
The tax benefit of net operating losses, capitalized research expenses, temporary differences and credit carryforwards are recorded as an asset to the extent that the Company assesses that realization is more likely than not. Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. As a result of the Company’s recent history of operating losses, the Company believes that recognition of deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a full valuation allowance. The valuation allowance increased by $25.0 million and $30.2 million during the years ended December 31, 2024 and 2023. The increase in valuation allowance during the year ended December 31, 2024, was primarily due to the increase in deferred tax assets from 2024 federal net operating losses and the IRC Section 174 capitalized expenses.
Net Operating Loss and Tax Credit Carryforwards
As of December 31, 2024, the Company’s net operating loss and tax carryforwards are summarized as follows:
(In thousands) |
|
Amount |
|
|
Expiration in years |
|
Net operating losses, federal (post-December 31, 2017) |
|
$ |
291,837 |
|
|
Do Not Expire |
Net operating losses, federal (pre-January 1, 2018) |
|
$ |
3,093 |
|
|
2036 - 2037 |
Net operating losses, state |
|
$ |
63,519 |
|
|
2036 - 2040 |
Tax credits, federal |
|
$ |
19,339 |
|
|
2040 - 2044 |
Tax credits, state |
|
$ |
8,186 |
|
|
Do Not Expire |
Under Section 382 of the Internal Revenue Code of 1986, as amended, the ability to utilize net operating loss carryforwards or other tax attributes, such as research tax credits, in any taxable year may be limited if the Company has experienced an “ownership change”. This annual limitation may result in the expiration of net operating losses and credits before utilization. As of December 31, 2024, the Company concluded that there were no ownership changes during 2024. The Company’s ability to use its remaining net operating loss carryforwards may be further limited if the Company experiences a Section 382 ownership change as a result of future changes in its stock ownership.
Unrecognized Tax Benefits
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
December 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In thousands) |
|
|||||
Balance at beginning of year |
|
$ |
4,521 |
|
|
$ |
3,141 |
|
Additions based on tax positions related to current year |
|
|
1,414 |
|
|
|
1,423 |
|
Additions based on tax positions related to prior years |
|
|
422 |
|
|
|
— |
|
Reductions for tax positions related to prior years |
|
|
— |
|
|
|
(43 |
) |
Balance at end of year |
|
$ |
6,357 |
|
|
$ |
4,521 |
|
The entire amount of the unrecognized tax benefits would not impact the Company’s effective tax rate if recognized as the Company continues to maintain a full valuation allowance against its deferred tax assets. The Company has elected to include interest and penalties as a component of tax expense. During the years ended December 31, 2024 and 2023, the Company did not recognize accrued interest and penalties related to unrecognized tax benefits. The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease during the next 12 months.
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.