Income taxes

For the years ended December 31, 2016 and December 31, 2015 and for the period from February 26, 2014 (inception) to December 31, 2014, the Company did not record a current or deferred income tax provision or benefit. The Company's losses before income taxes for the periods presented consisted solely of domestic losses.

The following table presents a reconciliation of income tax expense (benefit) computed at the statutory federal income tax rate to the effective income tax rate as reflected in the consolidated financial statements:



	Year Ended December 31, 2016		Year Ended December 31, 2015		Period from February 26, 2014 (Inception) to December 31, 2014
Federal income tax expense at statutory rate	35.0	%	35.0	%	35.0	%
State income tax, net of federal benefit	5.0	%	3.4	%	3.7	%
Permanent differences	0.0	%	(0.2	)%	(0.3	)%
Stock-based compensation	(2.6	)%	(6.3	)%	(5.3	)%
Research credits	1.9	%	1.8	%	1.2	%
Other, net	(0.1	)%	0.4	%	n/a
Change in valuation allowance	(39.2	)%	(34.1	)%	(34.3	)%
Effective tax rate	0.0	%	0.0	%	0.0	%

Deferred income tax assets and liabilities are determined based upon temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The following table presents the significant components of the Company's deferred tax assets and liabilities:



	December 31, 2016			December 31, 2015
Deferred tax assets:
U.S. and state net operating loss carryforwards	$	24,322,172		$	11,118,289
Accruals and other temporary differences	529,462			510,897
Amortization	32,171			33,824
Stock-based compensation	1,847,441			473,801
Tax credit carryforward	1,423,292			671,012
Total deferred tax assets	28,154,538			12,807,823
Less valuation allowance	(28,127,611		)	(12,688,401		)
Deferred tax assets	26,927			119,422
Deferred tax liabilities:
Stock-based compensation	(23,316		)	(110,366		)
Depreciation	(3,611		)	(9,056		)
Accruals and other temporary differences	—			—
Deferred tax liabilities	(26,927		)	(119,422		)
Net deferred tax assets	$	—		$	—

As of December 31, 2016, the Company has U.S. federal net operating loss carryforwards of approximately $61,000,000 and U.S. state net operating loss carryforwards of approximately $58,500,000 ($4,500,000 tax affected), which are available to reduce future taxable income. Approximately $120,000 of the federal and state net operating loss carryforwards will result in an increase to additional paid-in capital if and when these carryforwards are used to reduce federal and state income taxes payable. The Company also had federal research and development tax credit carryforwards of $1,200,000 and state research and development tax credit carryforwards of $340,000, which may be used to offset future tax liabilities.

The Company will adopt ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, for the quarter ended March 31, 2017. As a result of adoption, the deferred tax assets associated net operating losses will increase by $120,000. These amounts will be offset by a corresponding increase in the valuation allowance. The adoption of ASU 2016-09 will have not impact to the Company’s consolidated statement of operations, balance sheet, or retained earnings.

The Company's federal and state operating loss carryforwards and tax credit carryforwards will expire at various dates through 2036. Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss 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 percent, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is 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. The Company has completed financings since its inception which may have resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code, or could result in a change in control in the future. The Company has not conducted an assessment to determine whether there may have been a Section 382 or 383 ownership changes.

ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After considerations of all the evidence, both positive and negative, the Company continues to maintain a valuation allowance for the full amount of the 2016 deferred tax asset because it is more likely than not that the deferred tax asset will not be realized. The valuation allowance increased by $15,400,000 from December 31, 2015 to December 31, 2016, primarily due to an increase in net operating losses.

The Company has no unrecognized tax benefits. Interest and penalty charges, if any, related to uncertain tax positions would be classified as income tax expenses in the accompanying consolidated statement of operations. At December 31, 2016 and 2015, the Company had no accrued interest or penalties related to uncertain tax positions.