NOTE D – INCOME TAXES

The provision for income taxes consists of the following:

	Years ended December 31,
Current	2019		2018
Federal	$	1,135,209	$	893,768
State		178		27
Total current provision for income taxes		1,135,387		893,795
Deferred
Federal		133,272		219,728
State		-		-
Total deferred provision for income taxes		133,272		219,728
Total provision for income taxes	$	1,268,659	$	1,113,523

The following is a reconciliation of the Company’s effective income tax rate to the Federal statutory rate (dollar amounts have been rounded to the nearest thousand):

	Years ended December 31,
	2019						2018
	($)			Tax rate			($)			Tax rate
Income taxes at statutory federal income tax rate	$	1,266,000			21.0	%	$	1,148,000			21.0	%
Nondeductible expenses		1,000			-			1,000			-
Research & development credits		(8,000	)		(0.1	)		(20,000	)		(0.3	)
Non-taxable dividends		(2,000	)		-			(6,000	)		(0.1	)
Other, net		12,000			0.2			(9,000	)		(0.2	)
Provision for income taxes	$	1,269,000			21.1	%	$	1,114,000			20.4	%

The TJCA favorably amended certain tax provisions applicable to eligible small business taxpayers. On

August 3, 2018,

the IRS issued Rev. Proc.

2018

which permits small business taxpayers to obtain automatic IRS consent to implement the small taxpayer provisions under the act, effective for tax years beginning after

December 31, 2017.

For the year ended

December 31, 2018,

in accordance with Rev. Proc.

2018

40,

the Company elected to change its method of tax accounting from an accrual method to the cash method.

The tax effects of temporary differences which comprise the deferred tax assets and liabilities are as follows:

	December 31,
	2019			2018
Deferred tax assets
Allowance for doubtful accounts	$	4,447		$	3,548
Inventories		7,350			4,200
Accounts payable		14,991			39,227
Accrued expenses		235,633			215,604
Total deferred tax assets	$	262,421		$	262,579


Deferred tax liabilities
Accounts receivable		(445,113	)		(354,787	)
Prepaid expenses		(42,319	)		(38,913	)
Depreciation on property, plant and equipment		(73,384	)		(69,424	)
Unrealized gain on marketable securities		(88,460	)		(53,038	)
Total deferred tax liabilities		(649,276	)		(516,162	)
Net deferred tax liability	$	(386,855	)	$	(253,583	)