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Income Taxes
 3 Months Ended
Dec. 28, 2024
Income Tax Disclosure [Abstract]  
Income Taxes
10. Income Taxes
The Company’s income tax provision and the resulting effective tax rate for interim periods is generally determined based upon its estimated annual effective tax rate ("AETR"), adjusted for the effect of discrete items arising in that quarter. The impact of such inclusions could result in a higher or lower effective tax rate during a quarter, based upon the mix and timing of actual earnings or losses versus annual projections. In each quarter, the Company updates its estimate of the AETR, and if the estimated AETR changes, a cumulative adjustment is made in that quarter.
The Company recorded a benefit from income taxes of $6.4 million and a provision for income taxes of $12.0 million for the three months ended December 28, 2024 and December 30, 2023, respectively, related to U.S. and non-U.S. income taxes. The negative U.S. AETR is driven by anticipated income tax expense on a forecasted U.S. book loss resulting from capitalizing research and development expense pursuant to U.S. Internal Revenue Code ("Section 174") with no corresponding deferred tax benefit.
For the three months ended December 28, 2024, the Company utilized the AETR method to calculate separate U.S. and foreign income tax provisions. Separate U.S. and foreign AETRs were calculated in accordance with US GAAP since Sonos Inc is forecasted in a full-year loss with no corresponding deferred tax benefit while all non-U.S. entities are forecasted to profitability and, unlike the prior year, small fluctuations in forecasted pre-tax income (loss) are not expected to have a material impact on the estimated U.S. AETR. For the three months ended December 30, 2023, the Company calculated its U.S. income tax provision using the discrete method as though the interim period was an annual period since minor deviations in the projected pre-tax net income (loss) in the U.S. could have resulted in a disproportionate and unreliable effective tax rate under the AETR method.
For the three months ended December 28, 2024, the Company’s tax benefit resulted from the application of a negative U.S. AETR to year-to-date U.S. pretax income offset in part by a tax provision for non-U.S. income taxes. For the three months ended December 30, 2023, the Company's U.S. income tax provision was adversely impacted by Section 174 as the Company recorded a current U.S. tax expense with no corresponding deferred tax benefit due to the valuation allowance maintained against its U.S. deferred tax assets.
For the three months ended December 28, 2024, the Company concluded that a full valuation allowance on its deferred tax assets in the U.S. continued to be appropriate considering cumulative pre-tax losses in recent years and uncertainty with respect to future taxable income. Release of the valuation allowance in the U.S. would result in a benefit to the income tax provision in the period the release is recorded, which could have a material impact on net earnings. The timing and amount of the potential valuation allowance release are subject to significant management judgment, as well as prospective earnings in the U.S.