Toast, Inc.TOST
Toast, Inc. Income Taxes Disclosure
Income Taxes
(a) During the year ended December 31, 2025 state taxes in California and Texas made up the majority (greater than 50 percent) of the tax effect in this category.
The components of income (loss) before income taxes are as follows (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
United States | $ | 318 | $ | 7 | $ | (258) | |||||||||||
Foreign | 28 | 15 | 14 | ||||||||||||||
Income (loss) before income taxes | $ | 346 | $ | 22 | $ | (244) | |||||||||||
The components of income tax (expense) benefit for the fiscal years ended December 31, 2025, 2024, and 2023, were as follows (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Current state | $ | (3) | $ | (2) | $ | (1) | |||||||||||
Current foreign | (1) | (1) | (2) | ||||||||||||||
Current tax expense | (4) | (3) | (3) | ||||||||||||||
Deferred federal | — | — | 1 | ||||||||||||||
Deferred tax benefit | — | — | 1 | ||||||||||||||
Total income tax (expense) benefit | $ | (4) | $ | (3) | $ | (2) | |||||||||||
The tax effects of temporary differences that gave rise to a significant portion of the deferred tax assets and liabilities at December 31, 2025 and 2024, were as follows (in millions):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Deferred tax assets: | |||||||||||
Net operating loss carryforwards | $ | 246 | $ | 210 | |||||||
Stock-based compensation expense | 18 | 25 | |||||||||
Credit carryforward | 84 | 63 | |||||||||
Accrued expenses and reserves | 88 | 65 | |||||||||
Charitable contributions | 13 | 11 | |||||||||
Deferred revenue | 1 | 1 | |||||||||
Depreciation | — | 2 | |||||||||
Capitalized R&D | 46 | 112 | |||||||||
Lease liability | 7 | 8 | |||||||||
Total deferred tax assets | 503 | 497 | |||||||||
Valuation allowance | (436) | (442) | |||||||||
Net deferred tax assets | 67 | 55 | |||||||||
Deferred tax liabilities: | |||||||||||
Depreciation | (1) | — | |||||||||
Amortization | (3) | (5) | |||||||||
Capitalized contract acquisition costs | (56) | (44) | |||||||||
Right-of-use asset | (7) | (6) | |||||||||
Total deferred tax liabilities | (67) | (55) | |||||||||
Net deferred tax asset (liability) | $ | — | $ | — | |||||||
Below is a tabular reconciliation of our effective tax rate to the United States federal income tax rate pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 (dollars in millions):
Year Ended December 31, 2025 | |||||||||||
Amount | Percent | ||||||||||
U.S federal statutory tax rate | $ | 73 | 21.0 | % | |||||||
State and local income taxes, net of federal income tax effect (a) | 2 | 0.6 | % | ||||||||
Foreign tax effects | |||||||||||
Other foreign jurisdictions | (4) | (1.3) | % | ||||||||
Effect of changes in tax laws or rates enacted in the current period | — | — | % | ||||||||
Effect of cross-border tax laws | |||||||||||
Other | 1 | 0.5 | % | ||||||||
Tax Credits | |||||||||||
Research and development tax credits | (17) | (5.0) | % | ||||||||
Changes in valuation allowances | (9) | (2.5) | % | ||||||||
Nontaxable or nondeductible items | |||||||||||
Share based payment awards | (70) | (20.2) | % | ||||||||
Executive compensation | 26 | 7.5 | % | ||||||||
Other | 2 | 0.6 | % | ||||||||
Changes in unrecognized tax benefits | — | — | % | ||||||||
Effective Tax Rate | $ | 4 | 1.2 | % | |||||||
Below is a tabular reconciliation of our effective tax rate to the United States federal income tax rate, as previously disclosed, and prior to the adoption of ASU 2023-09, for the years ended December 31, 2024 and 2023:
December 31, | |||||||||||
2024 | 2023 | ||||||||||
Tax provision at statutory rate | 21.0% | 21.0% | |||||||||
State tax - net of federal | (20.2)% | 5.4% | |||||||||
Warrants | 33.7% | 0.3% | |||||||||
Non-deductible executive compensation | 95.1% | (0.9)% | |||||||||
Non-deductible meals and entertainment | 6.3% | (0.5)% | |||||||||
Research and development credits | (29.3)% | 6.5% | |||||||||
Stock-based compensation expense | (304.9)% | 3.6% | |||||||||
Change to uncertain tax positions | 17.4% | —% | |||||||||
Global intangible low-taxed income | (8.6)% | (1.3)% | |||||||||
Other, net | (3.9)% | 0.4% | |||||||||
Change in valuation allowance | 204.9% | (35.3)% | |||||||||
Effective Tax Rate | 11.5% | (0.8)% | |||||||||
During the fiscal year ended December 31, 2025, we recorded an income tax expense of $4 million, which is primarily attributable to $3 million of U.S. state tax expense and $1 million of foreign tax expense related to the earnings of our profitable foreign subsidiaries.
On July 4, 2025, the One Big Beautiful Bill Act, or OBBBA, was signed into law, which represents the enactment date under U.S. GAAP. Key corporate tax provisions include the restoration of 100% bonus depreciation, immediate expensing for domestic research and experimental expenditures, changes to Section 163(j) interest limitations, updates to Global Intangible Low-Taxed Income, or GILTI, and Foreign-Derived Intangible Income, or FDII, rules, amendments to energy credits, and expanded Section 162(m) aggregation requirements.
In accordance with ASC 740, we recognized the effects of the OBBBA in the period of enactment. Management evaluated the provisions of the OBBBA, recalculated temporary differences, reassessed valuation allowances, and considered any necessary adjustments. The enactment of the OBBBA did not have a material impact on our consolidated financial statements for the year ended December 31, 2025. Management will continue to monitor forthcoming guidance, interpretations, and technical clarifications to assess whether any future adjustments or additional disclosures may be required in subsequent periods.
Management evaluated all available positive and negative evidence in assessing the realizability of our net deferred tax assets. Evidence included the availability of taxable income in carryback periods, reversals of existing taxable temporary differences, tax planning strategies and future income projections. Based upon the evidence, including our historical book and taxable losses, management determined that it is more likely than not that our U.S. net deferred tax assets will not be realized, and therefore the valuation allowance was retained against our net U.S. deferred tax assets as of December 31, 2025. On a worldwide basis, the valuation allowance increased (decreased) by $(6) million, $45 million, and $87 million during the fiscal years ended December 31, 2025, 2024, and 2023, respectively, primarily due to the impact of stock compensation windfalls together with other equity related tax adjustments, operating losses incurred and tax credits generated during each year.
Based on current projections, management believes there is a reasonable possibility that a portion or all of the valuation allowance may be released within the next 12 months. Any such release would result in the recognition of deferred tax assets and a corresponding reduction to income tax expense in the period the release is recorded. Management will continue to reassess the valuation allowance against its net U.S. deferred tax assets based on the evaluation of all available positive and negative evidence; however, the timing and amount of any release remains uncertain and is subject to change based on future operating results.
As of December 31, 2025, we had U.S. federal net operating loss carryforwards of $928 million which may be able to offset future income tax liabilities. Of the federal net operating loss carryforward $843 million has an indefinite carryforward period, and $85 million will expire at various dates through 2037. As of December 31,
2025, we had U.S. state net operating loss carryforwards of $873 million, of which $718 million begin to expire in 2026 and the remaining $155 million do not expire. As of December 31, 2025, we had U.S. federal tax credit carryforwards of $70 million which expire between 2033 and 2045. As of December 31, 2025 we had U.S. state tax credit carryforwards of $26 million which expire between 2032 and 2040.
Cash income taxes paid during the year ended December 31, 2025 were not material to our consolidated financial statements, either individually, by jurisdiction, or in the aggregate, and therefore a jurisdictional disaggregation of cash taxes paid has not been presented.
Ownership changes, as defined in the Internal Revenue Code Section 382, could limit the amount of U.S. net operating loss and tax credit carryforwards that can be utilized annually to offset future taxable income. Generally, an ownership change occurs when the ownership percentage of 5% or greater stockholders increases by more than 50% over a three-year period. We have completed a historical ownership change analysis and while we have experienced ownership changes in the past, none of our existing federal and state tax attributes are subject to historical limitations that are expected to materially limit our utilization. Our ability to utilize our federal and state attributes could be limited by ownership changes that may occur in the future.
The following table reflects changes in unrecognized tax benefits for the periods presented below (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Balance, beginning of year | $ | 5 | $ | — | $ | — | |||||||||||
Additions for tax positions related to current period | 2 | 2 | — | ||||||||||||||
Additions for tax positions related to prior periods | — | 3 | — | ||||||||||||||
Lapse of statute of limitations / settlements | — | — | — | ||||||||||||||
Balance, end of year | $ | 7 | $ | 5 | $ | — | |||||||||||
As of December 31, 2025, we had gross unrecognized tax benefits of $7 million, that if recognized would not impact the effective tax rate due to the valuation allowance maintained on our U.S. deferred tax assets. We recognize accrued interest and penalties related to income tax matters as a component of income tax expense, neither of which are material for any of the periods presented.
We file income tax returns in the United States (federal, and various state jurisdictions), as well as various foreign jurisdictions. The federal, state and foreign income tax returns are generally subject to tax examinations for the tax years ended December 31, 2022 through December 31, 2025. To the extent we have tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, state or foreign tax authorities until utilized in a future period.
Certain jurisdictions in which we operate have enacted tax legislation based on the OECD’s global minimum tax framework, or Pillar Two, with rules effective for fiscal years beginning in 2024 and additional provisions effective in 2025. We have performed an assessment of the potential impact of Pillar Two based on available information, including recent tax filings, country-by-country reporting, and financial results of affected subsidiaries. Based on this assessment, we expect Pillar Two will have an immaterial impact for the year ended December 31, 2025. We will continue to monitor developments and assess the impact of the Pillar Two rules on future periods.
As of December 31, 2025, we have not provided deferred U.S. income taxes or foreign withholding taxes on temporary differences resulting from unremitted earnings for certain non-U.S. subsidiaries, which are permanently reinvested outside of the U.S. The determination of the deferred tax liability associated with unremitted earnings which are indefinitely reinvested outside of the U.S. is not practicable.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 18, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 1, 2022 | |
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.