Rent the Runway, Inc.

RENT THE RUNWAY, INC.Notes to Condensed Consolidated Financial Statements

8. Income Taxes

The Company’s provision or benefit from income taxes in interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter the Company updates its estimate of the annual effective tax rate, and if its estimated tax rate changes, the Company makes a cumulative adjustment. The estimate of the annual effective income tax rate for the full year is applied to the respective interim period, taking into account year-to-date amounts and projected results for the full year.

The Company continues to maintain a full valuation allowance on all United States net deferred tax assets for all periods presented.

The amount of unrecognized tax benefits as of July 31, 2025 and January 31, 2025 was $1.3 million and $1.2 million, respectively. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The total amount of unrecognized benefits relating to the Company’s tax position is subject to change based on future events including, but not limited to, the settlements of ongoing audits and/or the expiration of applicable statutes of limitations. The outcomes and timing of such events are highly uncertain and a reasonable estimate of the range of gross unrecognized tax benefits, excluding interest and penalties, that could potentially be reduced during the next 12 months cannot be made at this time.

On July 4, 2025, the U.S. government enacted the One Big Beautiful Bill Act of 2025 (“the Act”) which includes, among other provisions, changes to the federal corporate income tax system, such as the immediate expensing of qualifying domestic research and development expenses and extensions of certain provisions within the Tax Cuts and Jobs Act. ASC 740, Income Taxes, requires the effects of changes in tax laws on deferred tax balances to be recognized in the period in which legislation is enacted, which occurred during the Company’s second fiscal quarter ended July 31, 2025. The Company has evaluated the provisions of the Act and reflected the impact during the three months ended July 31, 2025, which the impact was not material. Based on the Company's current financial position and results of operations, along with available information, the Company does not expect the Act to have a material impact on future periods. However, if our business operations or financial results change, or as additional regulations and administrative guidance are issued, we will evaluate any further impacts to our consolidated financial statements.