ROKU INC

13. INCOME TAXES

The components of loss before income taxes consisted of the following (in thousands):

The income tax expense consisted of the following (in thousands):

The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate:

Significant components of the Company’s deferred income tax assets and liabilities consisted of the following (in thousands):

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) eliminated the right to deduct research and development expenses for tax purposes in the period the expenses were incurred and instead requires all U.S. and foreign research and development expenses to be amortized over five and fifteen tax years, respectively. Due to this required capitalization of research and development expenses, the Company has recorded U.S. current income tax expense of $13.2 million for the year ended December 31, 2024.

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. As of December 31, 2024, the Company analyzed all available objective evidence, both positive and negative, and believes it is more-likely-than-not that some deferred tax assets will not be realizable. Accordingly, the Company has provided a valuation allowance against its U.S. deferred tax assets.

As of each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. During the year ended December 31, 2024, the Company recognized a tax benefit of $11.1 million related to the release of its valuation allowance against certain foreign deferred tax assets, which are expected to be utilized based on future forecasted income.

The Company’s U.S. federal and state valuation allowance increased by $61.3 million, $166.0 million, and $199.2 million during the years ended December 31, 2024, 2023, and 2022, respectively. The change in the valuation allowance during the years ended December 31, 2024, 2023, and 2022 is primarily attributable to an increase in deferred tax assets generated through capitalization of section 174 research and development expenses for U.S. federal and conforming state purposes. The Company’s foreign valuation allowance decreased by $51.9 million and increased by $3.5 million and $2.2 million during the years ended December 31, 2024, 2023, and 2022, respectively. The change in the valuation allowance during the year ended December 31, 2024 is primarily attributable to an increase in deferred tax assets as a result of the valuation allowance release in the Netherlands. The change in the valuation allowance during the years ended December 31, 2023 and 2022 is primarily attributable to an increase in net operating losses. The change in valuation allowance for all years is a charge or benefit to income tax expense.

For federal and state income tax reporting purposes, respective net operating loss carryforwards of $1,283.4 million and $1,380.4 million are available to reduce future taxable income. The federal net operating loss carryforwards will begin to expire in 2037, and certain state net operating losses have expired in 2024.

For Brazil, Netherlands, and U.K. income tax reporting purposes, the net operating loss carryforwards of $6.9 million, $53.4 million, and $27.7 million, respectively, are available to reduce future taxable income, if any. Brazil and U.K. net operating losses can be carried forward indefinitely. Netherlands net operating losses can be carried back one year and carried forward indefinitely.

As of December 31, 2024, the Company has research and development tax credit carryforwards of $199.7 million and $174.6 million for federal and state income tax purposes, respectively. If not utilized, the federal and state carryforwards will begin to expire in 2030 and 2039, respectively.

The total amount of unrecognized tax benefits as of December 31, 2024 is $92.1 million of which $88.0 million is composed of research and development credits and $4.1 million is related to international activities.

A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows (in thousands):

As of December 31, 2024, $3.9 million of the Company's gross unrecognized tax benefits, if recognized, would affect the effective tax rate and $88.2 million would result in an adjustment to deferred tax assets with corresponding adjustments to the valuation allowance. The Company does not expect its gross unrecognized tax benefits to change significantly within the next 12 months.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of its income tax expense. The Company recorded $0.9 million and $1.0 million of accrued interest and penalties related to uncertain tax positions as of December 31, 2024 and December 31, 2023, respectively.

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and certain foreign jurisdictions. All tax years remain subject to examination by federal and state authorities. These audits include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions, and compliance with federal, state, and local tax laws.

The Company will continue to indefinitely reinvest earnings from its foreign subsidiaries, which are not significant. While federal income tax expense has been recognized and distributions are generally exempt as a result of the Tax Act, the Company has not provided any additional deferred taxes with respect to items such as foreign withholding taxes and state income tax.