Income Taxes

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Note 10. Income Taxes

Note 10. Income Taxes

Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. A valuation allowance is established to reduce deferred tax assets if all, or some portion, of such assets will more than likely not be realized.

There is no current or deferred tax expense for 2020 and 2019, due to the Company’s loss position. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period. Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes and has recorded a full valuation allowance against the deferred tax asset.

The income tax effect of temporary differences comprising the deferred tax assets and deferred tax liabilities is a result of the following at December 31:

	2020			2019
Deferred tax assets (liability):
Net operating loss and contribution carryforwards	$	4,677,000		$	3,838,000
Fixed asset		1,000			—
Intangible asset		(16,000	)		(14,000	)
Capital loss carryforward		—			—
Charitable contributions		53,000			—
Stock-based compensation		696,000			248,000
		5,411,000			4,072,000
Valuation allowance		(5,411,000	)		(4,072,000	)
Net deferred tax assets	$	—		$	—

The 2020 increase in the valuation allowance was $1,339,000 compared to an increase of $711,000 in 2019.

The Company has available net operating loss and contribution carryforwards of approximately $22,272,000 for tax purposes to offset future taxable income which $10,003,000 incurred prior to 2018 expire through the year 2037 while $12,269,000 incurred subsequent do not expire. Pursuant to the Tax Reform Act of 1986, annual utilization of the Company’s net operating loss and contribution carryforwards may be limited if a cumulative change in ownership of more than 50% is deemed to occur within any three-year period. The tax years 2017 through 2020 remain open to examination by federal agencies and other jurisdictions in which it operates.

A reconciliation between the statutory federal income tax rate and the effective rate of income tax expense for the years ended December 31 follows:

	2020			2019
Statutory federal income tax rate		21	%		21	%
Permanent differences and other		(3.91	)%		0	%
NOL expirations		(3.10	)
True-up		0.03
Valuation allowance		(14.02	)%		(21	)%
Total		0	%		0	%