WEALTHFRONT CORPWLTH
WEALTHFRONT CORP Income Taxes Disclosure
Income Taxes
The components of income (loss) before income taxes consisted of the following (in thousands):
| Fiscal Year Ended January 31, | |||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||
| United States | (101,264) | 139,229 | 78,589 | ||||||||||||||
| Foreign | 16 | — | — | ||||||||||||||
| Income (loss) before income taxes | $ | (101,248) | $ | 139,229 | $ | 78,589 | |||||||||||
The provision for (benefit from) income taxes consisted of the following (in thousands):
| Fiscal Year Ended January 31, | |||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||
| Current expense (benefit): | |||||||||||||||||
| Federal | $ | — | $ | 1,200 | $ | — | |||||||||||
| State | 369 | 3,774 | 1,623 | ||||||||||||||
| Foreign | 4 | — | — | ||||||||||||||
| Deferred tax expense (benefit): | |||||||||||||||||
| Federal | (46,390) | (43,252) | — | ||||||||||||||
| State | (13,165) | (16,940) | — | ||||||||||||||
| Foreign | $ | — | $ | — | $ | — | |||||||||||
Total provision for (benefit from) income taxes | $ | (59,182) | $ | (55,218) | $ | 1,623 | |||||||||||
The reconciliation of the statutory federal income tax rate to the Company’s effective tax rate was as follows:
| Fiscal Year Ended January 31, 2026 | |||||||||||
Federal tax (benefit) at statutory rate | $ | (21,263) | 21.0 | % | |||||||
| State tax (benefit) at statutory rate, net of federal benefit* | (14,261) | 14.1 | % | ||||||||
| Foreign tax effects | 1 | — | % | ||||||||
| Effect of cross-border tax laws | 23 | — | % | ||||||||
| Tax credits: | |||||||||||
| Research and development credits | (13,845) | 13.7 | % | ||||||||
| Change in valuation allowance | — | — | % | ||||||||
| Nontaxable or nondeductible items: | |||||||||||
| Stock based compensation | (43,983) | 43.4 | % | ||||||||
| Executive compensation | 30,156 | (29.8) | % | ||||||||
| Other | (28) | 0.1 | % | ||||||||
| Changes in unrecognized tax benefits: | |||||||||||
| Reserve on research and development credits | 5,584 | (5.5) | % | ||||||||
| Other adjustments to prior year tax estimates | $ | (1,566) | 1.6 | % | |||||||
| Provision for (benefit from) income taxes | $ | (59,182) | 58.6 | % | |||||||
*State taxes in California made up the majority (greater than 50 percent) of the tax effect in this category.
The reconciliation of the statutory Federal income tax rate to the Company’s effective tax rate, for the year prior to the adoption of ASU 2023-09, was as follows:
| Fiscal Year Ended January 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Federal tax (benefit) at statutory rate | 21.0 | % | 21.0 | % | |||||||
State tax (benefit) at statutory rate, net of federal benefit | 1.9 | 4.4 | |||||||||
Change in valuation allowance | (57.6) | (17.1) | |||||||||
Stock-based compensation expense | (2.7) | (4.3) | |||||||||
Financial instrument fair value change | (2.3) | 1.2 | |||||||||
| Research and development tax credits | (1.1) | (4.8) | |||||||||
Other | 1.0 | 1.8 | |||||||||
Provision for (benefit from) income taxes | (39.8) | % | 2.2 | % | |||||||
The amount of cash income taxes paid, net of refunds received, consisted of the following (in thousands):
| Fiscal Year Ended January 31, 2026 | |||||
| Federal | $ | 1,500 | |||
| State and local: | |||||
| Massachusetts | 159 | ||||
| New Jersey | 146 | ||||
| New York State | 124 | ||||
| All other state and local | 561 | ||||
| Foreign | — | ||||
| Income taxes paid, net of amounts refunded | $ | 2,490 | |||
Deferred tax assets, net consisted of the following (in thousands):
| January 31, | |||||||||||
| 2026 | 2025 | ||||||||||
Deferred tax assets | |||||||||||
Accruals | $ | 325 | $ | 280 | |||||||
Fixed assets | 367 | 260 | |||||||||
Net operating loss carryforwards | 51,626 | 16,988 | |||||||||
| Research and development tax credits, net of reserves | 26,472 | 10,865 | |||||||||
Stock-based compensation expense | 25,363 | 15,315 | |||||||||
Lease liability | 2,724 | 3,488 | |||||||||
Research and experimental expenditures capitalization | 15,260 | 16,063 | |||||||||
| Intangible assets | 515 | — | |||||||||
Other | — | 791 | |||||||||
Gross deferred tax assets | 122,652 | 64,050 | |||||||||
Valuation allowance | — | — | |||||||||
Deferred tax assets, net of valuation allowance | 122,652 | 64,050 | |||||||||
Deferred tax liabilities | |||||||||||
Intangible assets | — | (922) | |||||||||
ROU asset | (2,280) | (2,934) | |||||||||
Other | (623) | — | |||||||||
Total deferred tax liabilities | (2,903) | (3,856) | |||||||||
Deferred tax assets, net | $ | 119,749 | $ | 60,194 | |||||||
During the year ended January 31, 2025, the Company concluded that its U.S. federal and state deferred tax assets ("DTAs") were more likely than not realizable based on an evaluation of all available evidence. This resulted in a full valuation allowance ("VA") release of $80.2 million. Key factors in this determination included the Company’s shift into a three-year cumulative income position, sustained revenue growth, and projected future profitability. As of January 31, 2026, the Company continues to believe that these DTAs are more likely than not to be realized, and no valuation allowance is required. While these estimates involve significant judgment, the Company believes its projections are reasonable.
As of January 31, 2026, the Company had federal and state net operating loss ("NOL") carryforwards of $181.7 million and $202.3 million, respectively, available to offset future taxable income. Federal NOLs generated prior to the Tax Cuts and Jobs Act ("TCJA") have been fully utilized; remaining federal NOLs were generated post-TCJA and may be carried forward indefinitely, subject to an 80% limitation of taxable income in the year of utilization. State NOL carryforwards will begin to expire in 2029. Additionally, the Company had federal research and development ("R&D") credits of $27.2 million, which begin to expire in 2039, and California R&D credits of $16.0 million, which have no expiration.
The Company’s ability to utilize the NOLs and tax credit carryforwards is subject to limitations in the event of an ownership change as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), and similar state law. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period. In the event that the Company has had a change in ownership, utilization of the carryforwards could be restricted. The Company assessed whether it had an ownership change, as defined by Section 382 of the Code, from its formation through January 31, 2026. Based upon this assessment, the Company experienced three ownership changes in the prior years. However, the Company does not expect any previous ownership changes to result in a
limitation that will reduce the total amount of NOLs and tax credit carryforwards that can be utilized. Additional ownership changes in the future could result in additional limitations on the Company’s NOL and tax credit carryforwards.
On July 4, 2025, the One Big Beautiful Bill Act, Public Law No. 119-21 and formally titled “An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14” (“OBBBA”) was enacted in the United States. The OBBBA includes a broad range of tax provisions, such as the permanent extension of certain provisions of the TCJA, modifications to the international tax framework, and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company has evaluated the provisions of the OBBBA and determined that the most significant impact relates to capitalization of research and experimental expenditures under IRC Section 174. The effects of this provision have been reflected in the Company’s income tax provision.
The Company had unrecognized tax benefits as outlined in the tabular reconciliation below (in thousands):
| Fiscal Year Ended January 31, | |||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||
| Unrecognized tax benefits as of the beginning of the year | $ | 8,052 | $ | 6,661 | $ | 5,435 | |||||||||||
| Increase in tax positions for prior years | 415 | — | — | ||||||||||||||
| Decrease in tax positions for prior years | — | — | — | ||||||||||||||
| Increase in tax positions for current year | 5,964 | 1,391 | 1,226 | ||||||||||||||
| Decrease in tax positions for current year | — | — | — | ||||||||||||||
| Settlements | — | — | — | ||||||||||||||
| Lapse from statute of limitations | — | — | — | ||||||||||||||
| Unrecognized tax benefits as of the end of the year | 14,431 | 8,052 | 6,661 | ||||||||||||||
The Company follows the provisions of ASC 740-10, Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in the financial statements of uncertain tax positions that have been taken or expected to be taken on a tax return. The Company's liability for unrecognized tax benefits was approximately $14.4 million and $8.1 million as of January 31, 2026 and 2025, respectively.
As of January 31, 2026, the Company had no accrued interest and penalties related to unrecognized tax benefits. If realized, $14.4 million of unrecognized tax benefits would impact the effective tax rate. The Company does not expect any significant increases or decreases to its unrecognized benefits within the next 12 months.
The Company files income tax returns in the United States, various state and local jurisdictions, and Canada. As of January 31, 2026, the Company’s U.S. federal and state tax returns for fiscal years through 2021 and 2020, respectively, are no longer subject to examination. However, tax authorities may still adjust net operating loss or tax credit carryforwards from closed tax years to the extent they are utilized in an open tax year. In Canada, the Company's initial tax return for the year ended January 31, 2025 remains subject to examination.
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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.