Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Note 12. Income Taxes

The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. Likewise, should the Company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made. 

The components of the provision for income tax expense are as follows for the years ended:

	December 31,
	2020			2019
Current taxes
Federal	$	—		$	—
State		—			—
Current taxes		—			—
Change in deferred taxes		38,600			239,300
Change in valuation allowance		(38,600	)		(239,000	)
Provision for income tax expense	$	—		$	-

The following is a summary of the significant components of the Company’s deferred tax assets and liabilities at December 31, 2020 and 2019:

	December 31,
	2020			2019
Deferred tax assets:
Equity based compensation	$	154,400		$	154,400
Allowance for doubtful accounts		4,300			4,500
Reserves for slow moving inventory		46,500			33,400
Depreciation		2,900			-
Net operating loss carryforward		1,336,300			1,390,700
Total deferred tax assets		1,544,400			1,583,000
Valuation allowance		(1,544,400	)		(1,583,000	)
Deferred tax assets net of valuation allowance	$	-		$	-

The effective tax rate used for calculation of the deferred taxes as of December 31, 2020 was 25.35%. The Company has established a 100% valuation allowance against deferred tax assets of $1,544,400, due to the uncertainty regarding realization reserve against the deferred tax assets. The change in valuation allowance was an increase of $38,600. The Company has approximately $3,465,000 of net loss carryforward that expire through 2037 and $1,807,000 that carryforward indefinitely, but is limited to 80% of taxable income in any one year.

The effective tax rate used for calculation of the deferred taxes as of December 31, 2019 was 25.35%. The Company has established a 100% valuation allowance against deferred tax assets of $1,583,000 due to the uncertainty regarding realization reserve against the deferred tax assets. The change in valuation allowance was an increase of $239,300.

The significant differences between the statutory tax rate and the effective tax rates for the Company for the years ended are as follows:

	December 31,
	2020			2019
Statutory tax rate		(21.00	)%		(21.00	)%
State tax, net of Federal benefits		(4.35	)%		(4.35	)%
Permanent differences		28.21	%		8.51	%
Change in valuation allowance		(2.86)	%		16.84	%
Effective tax rate		—	%		-	%