ThredUp Inc.TDUP
ThredUp Inc. Income Taxes Disclosure
Income Taxes
The components of loss from continuing operations before provision for income taxes were $40.0 million and $52.3 million during the years ended December 31, 2024 and 2023, respectively.
The Company had no federal provision for income taxes as the Company has incurred operating losses since inception. The Company’s state tax provision, which was current, was not material for the years ended December 31, 2024 and 2023.
The Company’s effective tax rate, as a percentage of pretax income from continuing operations, differs from the statutory federal rate primarily due to the valuation allowance that the Company records on its deferred tax assets, as management believes it is more likely than not that the deferred tax assets will not be fully realized.
The reconciliation between the provision for income taxes at the statutory rate and the provision for income taxes at the effective tax rate from continuing operations is as follows:
| Year Ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| (in thousands) | ||||||||||||||
Tax expense at U.S. statutory rate | $ | (8,394) | $ | (10,727) | ||||||||||
| Increase (decrease) in tax resulting from: | ||||||||||||||
| State taxes, net of federal effect | 23 | 17 | ||||||||||||
| Non-deductible and other expenses | 860 | 921 | ||||||||||||
| Stock-based compensation | 2,540 | 4,471 | ||||||||||||
| Change in valuation allowance | 5,000 | 5,337 | ||||||||||||
| Total | $ | 29 | $ | 19 | ||||||||||
The significant categories of temporary differences that gave rise to deferred tax assets and liabilities were as follows:
| December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| (in thousands) | ||||||||||||||
| Deferred tax assets: | ||||||||||||||
| Accruals and reserves | $ | 2,741 | $ | 2,639 | ||||||||||
| Inventory and deferred revenue | 115 | 91 | ||||||||||||
| Capitalized research and development costs | 14,100 | 11,112 | ||||||||||||
Stock-based compensation | 2,238 | 1,563 | ||||||||||||
Capital losses | 21,746 | — | ||||||||||||
| Intangibles | 393 | 76 | ||||||||||||
| Other | 1,303 | 1,598 | ||||||||||||
| Net operating loss carryforwards | 87,701 | 92,822 | ||||||||||||
| Gross deferred tax assets | 130,337 | 109,901 | ||||||||||||
| Less: valuation allowance | (120,612) | (98,404) | ||||||||||||
| Total deferred tax assets | 9,725 | 11,497 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Fixed assets | 9,723 | 11,222 | ||||||||||||
Other | 2 | 275 | ||||||||||||
| Total deferred tax liabilities | 9,725 | 11,497 | ||||||||||||
| Total net deferred tax assets | $ | — | $ | — | ||||||||||
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. Net deferred tax assets consist primarily of net operating loss carryforwards of approximately $87.7 million and $92.8 million as of December 31, 2024 and 2023, respectively, related to U.S. federal and state taxes. Net deferred tax assets also include capital loss carryforwards of $21.7 million related to U.S. federal and state taxes that were generated in the year ended December 31, 2024 as a result of the Remix divestiture transaction on November 30, 2024. See Note 15, Discontinued Operations, for further details. A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. As of December 31, 2024 and 2023, the Company held valuation allowances against its deferred tax assets due to the uncertainty of realizing future benefits from its net operating loss carryforwards, capital loss carryforwards, and other deferred tax assets. The valuation allowance increased by $22.2 million and $6.5 million during the years ended December 31, 2024 and 2023, respectively.
U.S. federal and state net operating loss carryforwards of $342.3 million and $271.4 million, respectively, for income tax purposes are available to offset future taxable income as of December 31, 2024. $263.3 million of the U.S. federal net operating losses can be carried forward indefinitely and are available to offset 80% of future taxable income. If not used, these federal carryforwards will begin to expire in varying amounts beginning in 2034.
The Tax Reform Act of 1986 and similar California legislation impose substantial restrictions on the utilization of net operating losses and tax credit carryforwards in the event that there is a change in ownership as provided by Section 382 and Section 383 of the Internal Revenue Code and similar state provisions. Such a limitation could result in the limitation and/or expiration of the net operating loss carryforwards and tax credits before utilization, which could result in increased future tax liabilities when the Company becomes taxable for federal or state purposes. While the Company has experienced an ownership change since its inception, an immaterial amount of net operating losses or tax credits has been limited as of December 31, 2024.
The Company recognizes the benefits of income tax positions only if the positions are more likely than not of being sustained. As of December 31, 2024 and 2023, the amount of gross unrecognized tax benefits related to continuing operations was $1.3 million and $1.0 million, respectively. All of the unrecognized tax benefits, if recognized, would not impact the Company’s effective income tax rate.
A reconciliation of gross unrecognized tax benefits from continuing operations is as follows:
| Year Ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| (in thousands) | ||||||||||||||
Balance at the beginning of the period | $ | 987 | $ | — | ||||||||||
Increases related to prior year tax positions | — | 319 | ||||||||||||
Increases related to current year tax positions | 285 | 668 | ||||||||||||
Balance at the end of the period | $ | 1,272 | $ | 987 | ||||||||||
The Company’s tax years 2010 through current will remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss or tax credit carryforward. The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions.
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.