Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 14. 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,
	2022			2021
Current taxes
Federal	$	—		$	—
State		—			—
Current taxes		—			—
Change in deferred taxes		680,108			40,100
Change in valuation allowance		(680,108	)		(40,100	)
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, 2022 and 2021:

	December 31,
	2022			2021
Deferred tax assets:
Equity based compensation	$	395,600		$	154,400
Allowance for doubtful accounts		7,200			11,700
Reserves for slow moving inventory		42,200			46,500
Depreciation		13,800			6,000
Reserve for recall		(33,700	)		-
Net operating loss carryforward		1,759,300			1,285,500
Total deferred tax assets		2,218,100			1,504,200
Deferred tax liabilities
Reserve for recall		(33,700	)		-
Total deferred tax liability		(33,700	)		-
Total deferred tax		2,184,400			1,504,200
Valuation allowance		(2,184,400	)		(1,504,200	)
Deferred tax assets, net of valuation allowance	$	-		$	-

The effective tax rate used for calculation of the deferred taxes as of December 31, 2022 was 25.35%. The Company has established a 100% valuation allowance against deferred tax assets of approximately $2,184,400, due to the uncertainty regarding realization reserve against the deferred tax assets. The change in valuation allowance was an increase of $680,108. The Company has approximately $3,346,650 of net loss carryforward that expire through 2037 and $2,125,933 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, 2021 was 25.35%. The Company has established a 100% valuation allowance against deferred tax assets of $1,504,200 due to the uncertainty regarding realization reserve against the deferred tax assets. The change in valuation allowance was an increase of $40,100.

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,
	2022			2021
Statutory tax rate		(21.00	)%		(21.00	)%
State tax, net of Federal benefits		(4.30	)%		(4.35	)%
Permanent differences		0.07	%		5.20	%
Temporary differences		10.90	%		22.76	%
Change in valuation allowance		14.35	%		(2.61	)%
Effective tax rate		—	%		—	%

The Company’s income tax returns for 2019 through 2022 remain subject to examination by the Internal Revenue Services and state tax authorities.