Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

14. Income Taxes

Income tax provision (benefit) is as follows for the years ended:

	DECEMBER 31,
	2021			2020
Current provision
State	$	100,000		$	68,541
Foreign		50,165			6,577
Total		150,165			75,118
Deferred provision (benefit)
Federal		567,316			(6,651,247	)
State		(83,032	)		(823,822	)
Foreign		5,998			-
Total		490,282			(7,475,069	)
Income tax provision (benefit)	$	640,447		$	(7,399,951	)

Income tax provision (benefit) effective rates, which differs from the federal and state statutory rate as follows for the years ended: 

	DECEMBER 31,
	2021			2020
Statutory federal income tax rate		21.0	%		21.0	%
State, net of federal benefit		7.5	%		7.0	%
Non-deductible expenses		19.7	%		0.8	%
Change in valuation allowance		15.1	%		281.2	%
Foreign rate differential		3.8	%		0.0	%
Return to accrual difference true-ups		15.1	%		1.4	%
Other		(0.1	)%		1.1	%
Deferred tax adjustment and true-up		88.2	%		3.4	%
Combined effective tax rate		62.9	%		253.1	%

The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets (liabilities) consisted of the following:

	DECEMBER 31,
	2021			2020
Deferred tax assets:
Net operating loss carryforwards	$	9,501,008		$	9,711,726
Alternative minimum tax credit		45,650			45,650
Share-based compensation		659,338			627,980
Intangible amortization		208,036			473,882
Lease liability		1,554,888			1,522,560
Other assets		251,553			107,682
Total deferred tax assets		12,220,473			12,489,480
Less: valuation allowance		(1,999,630	)		(2,152,768	)
Total deferred tax assets, net		10,220,843			10,336,712
Deferred tax liabilities:
Goodwill amortization		3,041,451			2,786,029
Depreciation		210,755			177,170
Foreign intangible amortization		409,269			336,759
Other liabilities		12,830			12,819
Lease asset		1,419,056			1,417,856
Total deferred tax liabilities		5,093,361			4,730,633
Net deferred tax asset	$	5,127,482		$	5,606,079

As of December 31, 2021, the Company had approximately $34.4 million in net operating loss (NOL) carry forwards available to offset future taxable income for federal income tax purposes. These federal NOL carry forwards expire between 2022 to 2038. Included in the recorded deferred tax asset, the Company had a benefit of approximately $38.4 million available to offset future taxable income for state income tax purposes. These state NOL carry forwards expire between 2024 and 2036.

Under the provisions of the Internal Revenue Code, the net operating losses (“NOL”) and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, respectively, as well as similar state tax provisions. This could limit the amount of tax attributes that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. This annual limitation may result in the expiration of the net operating losses and credits before utilization.

Changes in the valuation allowance for the years ended were as follows:

	DECEMBER 31,
	2021			2020
Beginning balance	$	(2,152,768	)	$	(10,364,787	)
Decreases (increases)		153,138			8,212,019
Ending balance	$	(1,999,630	)	$	(2,152,768	)

The Company’s valuation allowance predominantly consisted of domestic net operating loss carryforwards and certain state net operating loss carryforwards. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of December 31, 2020, in part because in the prior year we achieved three years of cumulative pretax income in the U.S. federal tax jurisdiction, management determined that there is sufficient positive evidence to conclude that it is more likely than not that additional deferred taxes are realizable. It therefore reduced the valuation allowance accordingly. During 2020, the Company released $8.2 million of the deferred tax asset valuation allowance to offset the regular tax expense generated by current earnings. In the future, changes in the Company’s valuation allowance may result from, among other things, additional pretax operating losses resulting in increases in our valuation allowance or pretax operating income resulting in decreases in our valuation allowance.

The Company files U.S. federal income tax returns with the Internal Revenue Service (“IRS”) as well as income tax returns in various states and certain foreign countries. The Company may be subject to examination by the IRS for tax years 2003 and forward. The Company may be subject to examinations by various state taxing jurisdictions for tax years 2003 and forward. The Company may be subject to examination by various foreign countries for tax years 2014 forward. As of December 31, 2021, the Company is currently not under examination by the IRS, any state or foreign tax jurisdiction. The Company did not have any unrecognized tax benefits at either December 31, 2021 or 2020. In the future, any interest and penalties related to uncertain tax positions will be recognized in income tax expense.