TERAWULF INC.WULF
TERAWULF INC. Income Taxes Disclosure
INCOME TAXES
The components of net loss before income tax for continuing operations (comprised of the total of loss before income tax and equity in net (loss) income of investee and equity in net (loss) income of investee, net of tax) for the years ended December 31, 2025, 2024 and 2023 are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | (661,340) | $ | (72,417) | $ | (73,419) | |||||||||||
| Foreign | — | — | — | ||||||||||||||
| Total | $ | (661,340) | $ | (72,417) | $ | (73,419) | |||||||||||
The Company’s income tax provision for continuing operations for the years ended December 31, 2025, 2024 and 2023 are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
State and local | — | — | — | ||||||||||||||
Foreign | — | — | — | ||||||||||||||
Total current income tax provision | — | — | — | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 73 | — | — | ||||||||||||||
State and local | 3 | — | — | ||||||||||||||
Foreign | — | — | — | ||||||||||||||
Total deferred income tax provision | 76 | — | — | ||||||||||||||
Income tax provision | $ | 76 | $ | — | $ | — | |||||||||||
The effective tax rate of the Company's provision for income taxes differs from the federal statutory rate for the year ended December 31, 2025 as follows:
Year Ended December 31, 2025 | |||||||||||
Amount | % | ||||||||||
| $ | (138,881) | 21.0 | % | ||||||||
State and local income taxes, net of federal income tax effect | 1 | — | % | ||||||||
Foreign tax effects | — | — | % | ||||||||
Effect of changes in tax laws or rates enacted in the current period | — | — | % | ||||||||
Effect of cross-border tax laws | — | — | % | ||||||||
Tax credits | — | — | % | ||||||||
Changes in valuation allowances | 33,183 | (5.0) | % | ||||||||
Nontaxable or nondeductible items | |||||||||||
| Change in fair value of warrants and derivatives | 90,256 | (13.7) | % | ||||||||
Non-deductible compensation | 18,423 | (2.8) | % | ||||||||
Excess tax deduction on stock compensation | (3,242) | 0.5 | % | ||||||||
Other | 271 | — | % | ||||||||
Changes in unrecognized tax benefits | — | — | % | ||||||||
| Other items | 65 | — | % | ||||||||
| Effective tax rate | $ | 76 | — | % | |||||||
A reconciliation between income tax provision and the expected tax provision at the statutory rate for the years ended December 31, 2024 and 2023 are as follows:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Federal statutory rate | 21.0 | % | 21.0 | % | |||||||
State taxes, net of federal benefit | 4.3 | % | 0.4 | % | |||||||
| Permanent differences | (0.1) | % | 0.8 | % | |||||||
| Non-deductible compensation | (14.6) | % | (1.3) | % | |||||||
| Change in valuation allowance | (17.6) | % | (15.6) | % | |||||||
| Share based liabilities | 7.0 | % | (4.5) | % | |||||||
| Change in fair value of warrants and derivatives | — | % | — | % | |||||||
| Other items | — | % | (0.8) | % | |||||||
| Effective tax rate | — | % | — | % | |||||||
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.
The tax effects of significant items comprising the Company's deferred taxes as of December 31, 2025 and 2024 are as follows (in thousands):
| December 31, 2025 | December 31, 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
Net operating losses | $ | 72,174 | $ | 48,552 | |||||||
| Accruals and reserves | 399 | 1,082 | |||||||||
Lease liabilities | 5,201 | 892 | |||||||||
| Stock compensation | 1,848 | 337 | |||||||||
Interest expense limitation carryforward | 13,737 | 5,665 | |||||||||
Goodwill and acquired intangibles | 1,910 | — | |||||||||
Other | 166 | — | |||||||||
| Gross deferred tax assets | 95,435 | 56,528 | |||||||||
| Valuation allowance | (85,162) | (53,705) | |||||||||
| Deferred tax assets, net | 10,273 | 2,823 | |||||||||
| Deferred tax liabilities: | |||||||||||
Lease right-of-use asset | (6,548) | (880) | |||||||||
| Property, plant and equipment | (3,801) | (1,943) | |||||||||
| Gross deferred tax liabilities | (10,349) | (2,823) | |||||||||
| Deferred tax liabilities, net | $ | (76) | $ | — | |||||||
ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2025 and 2024, the Company estimated a portion of its deferred tax assets will be utilized to offset the Company’s deferred tax liabilities. Based upon the level of historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, at this time, management believes it is more likely than not that the Company will not realize the benefits of the remaining deductible temporary differences, and as a result the Company has recorded a valuation
allowance as of December 31, 2025 and 2024, for the amount of deferred tax assets that will not be realized. The increase in the December 31, 2025 valuation allowance of $33.2 million is primarily attributable to the current year net loss.
As of December 31, 2025 and, 2024, for federal income tax purposes the Company had total net operating loss carryforwards of approximately $330.0 million and $211.1 million, respectively. As of December 31, 2025, the net operating losses will have an indefinite carryforward as a result of the Tax Cuts and Jobs Act, but may be limited in utilization to 80% of taxable income. For state income tax purposes, as of December 31, 2025 and 2024 the Company had state net operating loss carryforwards of approximately $47.2 million and $65.3 million, respectively, which begin to expire in 2041.
As of December 31, 2025 and 2024, the Company did not have any available federal or state research and development tax credit carryforwards.
Under the provisions of the Internal Revenue Code, the net operating loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. The Company has not completed a formal study to conclude whether an annual limitation may exist. Net operating loss carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.
The Company follows the provisions of ASC 740 which specifies how tax benefits for uncertain tax positions are to be recognized, measured, and recorded in the consolidated financial statements; requires certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the consolidated balance sheet; and provides transition and interim period guidance, among other provisions. As of December 31, 2025 and 2024, the Company had not recorded any long-term liabilities for uncertain tax positions. The Company’s policy is to recognize interest and penalties accrued on any uncertain tax positions as a component of income tax expense, if any, in its consolidated statements of operations. For the years ended December 31, 2025 and 2024, no estimated interest or penalties were recognized on uncertain tax positions.
The Company files income tax returns in the U.S. federal tax jurisdiction and various state jurisdictions. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all years in which a loss carryforward is available. The statute of limitations for assessment by federal and state tax jurisdictions in which the Company has business operations is open for the tax year ended December 31, 2025. The tax years subject to examination vary by jurisdiction.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Mar 3, 2025 | |
| 2023 | Mar 20, 2024 | |
| 2022 | Mar 31, 2023 | |
| 2021 | Mar 31, 2022 | |
| 2020 | Mar 3, 2021 | |
| 2019 | Mar 3, 2020 | |
| 2018 | Mar 1, 2019 | |
| 2017 | Mar 2, 2018 | |
| 2016 | Mar 3, 2017 | |
| 2015 | Mar 2, 2016 | |
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.