Entrada Therapeutics, Inc.TRDA
Entrada Therapeutics, Inc. Income Taxes Disclosure
Income Taxes
The Company recorded a $142.8 million of pre-tax book loss for the year ended December 31, 2025 and pre-tax book income of $66.5 million for the year ended December 31, 2024. The Company has no foreign operations.
The components of the income tax expense for the years ended December 31, 2025 and 2024 (in thousands) were:
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Current: | |||||||||||
Federal | $ | (345) | $ | 891 | |||||||
State | 1,269 | (32) | |||||||||
Foreign | — | — | |||||||||
Total current tax provision | 924 | 859 | |||||||||
Deferred: | |||||||||||
| Federal | — | — | |||||||||
| State | — | — | |||||||||
| Foreign | — | — | |||||||||
Total deferred tax provision | — | — | |||||||||
Total income tax provision | $ | 924 | $ | 859 | |||||||
A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Federal statutory income tax rate | 21.0 | % | 21.0 | % | |||||||
| State income taxes, net of federal benefit | 6.8 | % | 3.2 | % | |||||||
| Other Permanent differences | 0.6 | % | 2.7 | % | |||||||
| Federal and state research and development tax credits | 4.4 | % | (8.2) | % | |||||||
| Non-deductible stock compensation and non-taxable items | (1.7) | % | 2.8 | % | |||||||
| Change in deferred tax asset valuation allowance | (31.7) | % | (22.5) | % | |||||||
| Federal and State 453A interest | — | % | 2.3 | % | |||||||
| Effective income tax rate | (0.6) | % | 1.3 | % | |||||||
Net deferred tax assets as of December 31, 2025 and 2024 consisted of the following (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 49,578 | $ | 1,264 | |||||||
| Research and development tax credit carryforwards | 13,798 | 4,528 | |||||||||
| Intangible assets | 3,445 | 3,035 | |||||||||
| Capitalized research and development expenses | 41,576 | 51,433 | |||||||||
| Deferred revenue | 93 | 5,399 | |||||||||
| Lease liability | 14,120 | 16,487 | |||||||||
| Stock compensation | 3,172 | 2,420 | |||||||||
| Other Assets | 203 | 94 | |||||||||
| Total deferred tax assets | 125,985 | 84,660 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Property and equipment | (566) | (1,093) | |||||||||
| Right-of-use asset | (16,527) | (19,439) | |||||||||
| Prepaid expenses | (251) | (336) | |||||||||
| Other liabilities | (588) | (854) | |||||||||
| Total deferred liabilities | (17,932) | (21,722) | |||||||||
| Valuation allowance | (108,053) | (62,938) | |||||||||
| Net deferred tax assets | $ | — | $ | — | |||||||
The Company recorded income tax expense of $0.9 million for both the year ended December 31, 2025 and the year ended December 31, 2024. The income tax expense recorded for the year ended December 31, 2025 was primarily driven by adjustments made upon the finalization of tax returns. The income tax expense recorded for the year ended December 31, 2024 was primarily driven by the current tax liability associated with the $75.0 million payment for the achievement of the clinical advancement milestone for VX-670 and $1.7 million in related interest owed to taxing authorities pursuant to Section 453A.
As of December 31, 2025, the Company had federal net operating loss carryforwards of $178.3 million, which may be available to offset future taxable income. None of our federal net operating loss carryforwards will expire, but all are limited in their usage to an annual deduction equal to 80% of annual taxable income. In addition, as of December 31, 2025, the Company had state net operating loss carryforwards of $192.9 million, which may be available to offset future taxable income and expire at various dates beginning in 2036. As of December 31, 2025, the Company also had federal and state research and development tax credit carryforwards of $9.6 million and $5.3 million, respectively, which may be available to reduce future tax liabilities and expire at various dates beginning in 2039 and 2035, respectively. The Company has conducted R&D credit studies through December 31, 2024.
Utilization of the NOLs and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 due to ownership change limitations that have occurred previously or that could occur in the future in accordance with Section 382, as well as similar state provisions. These ownership changes may limit the amount of NOLs and research and development tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. If a change in control as defined by Section 382 has occurred at any time since the Company’s formation, utilization of its NOLs or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, which could then be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the NOLs or research and development tax carryforwards before their utilization. The Company has determined that ownership changes have occurred in the past and that certain NOLs and research and development tax credit carryforwards will be subject to limitation.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets, which consist primarily of net operating loss carryforwards and research and development tax credit carryforwards, capitalized research and development expenses and deferred revenue. Management has considered the Company’s history of cumulative net losses incurred since inception, estimated future taxable income, and prudent and feasible tax planning
strategies and has concluded that it is more likely than not that the Company will not realize the benefits of federal and state net deferred tax assets. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31, 2025 and 2024. The Company reevaluates the positive and negative evidence at each reporting period.
The valuation allowance increased by $45.1 million for the year ended December 31, 2025 and decreased by $15.0 million for the year ended December 31, 2024.
The Company assesses the uncertainty in its income tax positions to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. For tax positions meeting the more-likely-than-not threshold, the tax amount recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate settlement with the relevant taxing authority. As of December 31, 2025 and 2024, the Company had not recorded any reserves for uncertain tax positions or related interest and penalties.
In 2017, the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) was signed into law. Among other provisions, the 2017 Tax Act requires taxpayers to capitalize and amortize research and experimental (“R&E”) expenditures under Section 174 for tax years beginning after December 31, 2021. As such, the rule noted became effective for the Company during the year ended December 31, 2022 and resulted in the capitalization of R&E costs during tax year 2022, 2023 and 2024. Domestic R&E costs were amortized over 5 years and international R&E costs were amortized over 15 years.
On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act of 2025 ("OBBBA"). The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, and provides companies with the option to immediately expense domestic research costs. As such, for its 2025 tax provision, the Company reflected the immediate expensing of domestic R&E costs incurred during the year ended December 31, 2025. The OBBBA did not change the treatment of foreign R&E expenditures, which continue to be capitalized and amortized over fifteen years. The OBBBA had no impact on the Company's current and net deferred tax expense for the year ended December 31, 2025 as the Company is in a tax loss position and maintains a full valuation allowance.
The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. Due to net operating losses incurred, the Company’s tax returns from inception to date are subject to examination by the taxing authorities.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Mar 13, 2024 | |
| 2022 | Mar 6, 2023 | |
| 2021 | Mar 15, 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.