Note 2 - Income Taxes

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

2. INCOME TAXES

Income tax benefit for the years ended

December 

31,

2020

 and

2019

 consists of the following:

	2020			2019
Current:
Federal	$	(216,000	)	$	—
State		6,000			11,000
		(210,000	)		11,000
Deferred - Federal		—			(183,000	)
	$	(210,000	)	$	(172,000	)

The expected (benefit) provision for income taxes, computed by applying the U.S. federal income tax rate of

21%

to income (loss) before taxes, is reconciled to income benefit as follows:

	2020			2019
Expected provision for federal income taxes	$	(136,000	)	$	(207,000	)
State income taxes, net of federal benefit		(24,000	)		(7,000	)
Permanent items		(249,000	)		11,000
Research and development credit		(23,000	)		(29,000	)
Change in valuation allowance		440,000			51,000
Change in tax law allowing NOL carryback claim		(217,000	)		—
Prior year true-ups and other		(1,000	)		9,000
	$	(210,000	)	$	(172,000	)

Net deferred tax liabilities consist of the following as of

December 

31,

2020

 and

2019:

	2020			2019
Deferred tax liabilities:
Accrued vacation	$	33,000		$	21,000
Inventories reserve		17,000			42,000
Allowance for doubtful accounts		2,000			3,000
Allowance for sales returns		10,000			10,000
Research and development credit carryforward		285,000			245,000
Accrued self-insured medical		—			3,000
Property and equipment		(257,000	)		(295,000	)
Patents		(50,000	)		(53,000	)
Net operating loss		411,000			230,000
Other		17,000			8,000
Valuation allowance		(468,000	)		(214,000	)
Net deferred tax liabilities	$	—		$	—

As of

December 31, 2020,

the Company has federal net operating loss carry-forwards and research and development credit carryovers of

$1,847,000

and

$104,000,

respectively, and begin expiring in 

2037.

The Company's state net operating loss carryforwards and research and development credit carryovers at 

December 31, 2020 

total 

$468,000

and

$214,000,

respectively, and begin expiring in 

2026.

The Company is subject to federal and state taxation. As of 

December 31, 2020, 

with few exceptions, the Company is 

no

longer subject to examination prior to tax year 

2017.

In accounting for uncertainty in income taxes, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than

not

sustain the position following an audit. For tax positions meeting the more likely than

not

threshold, the amount recognized in the financial statements is the largest benefit that has a greater than

50

percent likelihood of being realized upon ultimate settlement with the relevant tax authority. As of 

December 31, 2020,

the Company does

not

have any unrecognized tax benefits. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. We do

not

expect any material changes in our unrecognized tax benefits over the next

12

months.

The Company establishes a valuation allowance to reduce the deferred tax assets when it is more likely than

not

that a deferred tax asset will

not

be realizable. On the basis of this evaluation, as of 

December 31, 2020

and

2019,

 a full valuation allowance has been recorded to reserve for deferred tax assets, which are 

not

 expected to be realized.