12. Income Taxes

Income before (benefit from) provision for income taxes was comprised of the following:

	FY 2016			FY 2015		FY 2014
	Year Ended			Year Ended		Year Ended
	December 31, 2016			January 2, 2016		January 3, 2015
United States	$	(2,656	)	$	291	$	1,332
Foreign		—			—		—
Total	$	(2,656	)	$	291	$	1,332

The provision for (benefit from) income taxes includes:

	FY 2016			FY 2015			FY 2014
	Year Ended			Year Ended			Year Ended
	December 31, 2016			January 2, 2016			January 3, 2015
Current:
Federal	$	-		$	(4	)	$	54
State		4			30			16
		4			26			70
Deferred:
Federal		9,271			(12	)		(7,862	)
State		(218	)		(197	)		(914	)
		9,053			(209	)		(8,776	)
Provision for (benefit from) income taxes	$	9,057		$	(183	)	$	(8,706	)

Our effective tax rate differs from the statutory federal income tax rate as shown in the following schedule:

	FY 2016 Year Ended December 31, 2016			FY 2015 Year Ended January 2, 2016			FY 2014 Year Ended January 3, 2015
Income tax provision at statutory rate		34.0	%		34.0	%		34.0	%
State income taxes, net of federal benefit		9.6	%		(70.8	)%		(68.0	)%
Permanent differences		(1.5	)%		12.0	%		(1.1	)%
Research and development credits		3.0	%		(34.8	)%		(2.6	)%
Change in valuation allowance		(387.4	)%		—			(613.5	)%
Other		1.3	%		(3.3	)%		(2.4	)%
Effective tax rate		(341.0	)%		(62.9	)%		(653.6	)%

The tax effect of temporary differences and carryforwards that give rise to significant portions of the net deferred tax assets are presented below (in thousands):

	FY 2016 December 31, 2016			FY 2015 January 2, 2016
Net operating losses	$	4,411		$	4,135
Research and development credits		2,113			1,820
Accruals and reserves		2,158			1,823
Deferred revenue		104			120
Property and equipment		396			399
Intangible assets		783			792
Stock compensation		972			613
Other tax credits		90			89
Net deferred tax asset		11,027			9,791
Valuation allowance		(11,095	)		(806	)
Net deferred tax (liabilities) assets	$	(68	)	$	8,985

Our accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of our deferred tax assets. Assessing the realizability of deferred tax assets is dependent upon several factors, including the likelihood and amount, if any, of future taxable income in relevant jurisdictions during the periods in which those temporary differences become deductible. Our management forecasts taxable income by considering all available positive and negative evidence including our history of operating income or losses and our financial plans and estimates which are used to manage the business. These assumptions require significant judgment about future taxable income. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are reduced.

As of December 31, 2016, based on the Company’s recent history of losses and its forecasted losses, management believes on a “more-likely-than-not” basis that a full valuation allowance is required. Accordingly, in the fourth quarter of fiscal year 2016, the Company provided a full valuation allowance on its federal and state deferred tax assets. As of December 31, 2016, the Company had federal and state net operating loss (“NOL”) carryforwards of $13.8 million and $15.3 million, respectively. Of the total NOL carryforwards, $3.0 million for federal and $2.5 million for states, relate to windfall stock option deductions which, when realized, will be credited to equity. The federal NOL will begin to expire in 2032 and the state NOL will begin to expire in 2020, in each case if not used.

In December 2015, Congress passed a tax extenders package, Protecting Americans from Tax Hikes (PATH) Act of 2015, and permanently extended the federal R&D credit. As of December 31, 2016, we had federal and state R&D credit carryforwards of approximately $1.6 million and $2.3 million, respectively, available to offset future tax liabilities. The federal credits will begin expiring in 2026 if not used. The state R&D credits do not expire. The above NOL and research and development credits are subject to Internal Revenue Code sections 382 and 383. In the event of a change in ownership as defined by these code sections, the usage of the above mentioned NOL’s and credits may be limited.

We account for uncertain tax positions in accordance with ASC 740, “Income Taxes”. ASC 740 seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax provision that an entity takes or expects to take in a tax return. Additionally, ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. Under ASC 740, an entity may only recognize or continue to recognize tax positions that meet a "more-likely-than-not" threshold. In accordance with our accounting policy, we recognize accrued interests and penalties related to unrecognized tax benefits as a component of income tax expense. There is no accrued interest and penalty during the year ended December 31, 2016.

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

	FY 2016 Year Ended December 31, 2016		FY 2015 Year Ended January 2, 2016		FY 2014 Year Ended January 3, 2015
Balance at the beginning of the year	$	937	$	861	$	1,027
Additions based upon tax positions related to the current year		75		73		53
Additions based upon tax positions related to the prior year		17		—		51
Reductions based upon tax positions related to the prior year		-		3		(270	)
Balance at the end of the year	$	1,029	$	937	$	861

Recognition of the unrecognized tax benefits of $1.0 million as of December 31, 2016 would affect our effective tax rate. We do not anticipate any material change in our unrecognized tax benefits of $1.0 million over the next twelve months. The unrecognized tax benefits may change during the next year for items that arise in the ordinary course of business.