Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 10. Income Taxes

Prior to the Company’s initial public offering in October 2015, the earnings of the Predecessor, which was a limited liability company taxed as a partnership, were taxable to its members.  In connection with the contribution of membership interests to the Company (a C-Corporation formed in 2015), the net income or loss of the Company after the initial public offering is taxable to the Company and reflected in the accompanying consolidated financial statements.

The Company performs an evaluation of the realizability of its deferred tax assets on a quarterly basis.  The Company considers all positive and negative evidence available in determining the potential of realizing deferred tax assets, including the scheduled reversal of temporary differences, recent and projected future taxable income and prudent and feasible tax planning strategies.  The estimates and assumptions used by the Company in computing the income taxes reflected in the accompanying consolidated financial statements could differ from the actual results reflected in the income tax returns filed during the subsequent year. Adjustments are recorded based on filed returns when finalized or the related adjustments are identified.

Under ASC 740-10-30-5, Income Taxes, deferred tax assets should be reduced by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not (i.e., a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. The Company considers all positive and negative evidence available in determining the potential realization of deferred tax assets including, primarily, the recent history of taxable earnings or losses. Based on operating losses reported by the Company during 2021 and 2020, the Company concluded there was not sufficient positive evidence to overcome this recent operating history. As a result, the Company believed that a valuation allowance was necessary based on the more-likely-than-not threshold noted above. The Company had recorded a valuation allowance of approximately $3,246,000 as of December 31, 2021 and $4,658,000 as of December 31, 2020.

Significant components of the tax expense (benefit) recognized in the accompanying consolidated statements of operations for the years ended December 31, 2021 and December 31, 2020 are as follows:

	Year Ended			Year Ended
	December 31, 2021			December 31, 2020
Current tax benefit
Federal	$	290,238		$	(955,977	)
State		35,940			(197,796	)
Total current tax expense (benefit)		326,178			(1,153,773	)
Deferred tax expense		1,126,450			130,403
Valuation allowance (expense)		(1,126,450	)		1,023,370
Income tax (reduction) benefit	$	326,178		$	-

The reconciliation of the income tax computed at the combined federal and state statutory rate of 27.1% for the year ended December 31, 2021 and 25.3% for the year ended December 31, 2020 to the income tax benefit is as follows:

	Year Ended December 31,						Year Ended December 31,
	2021			2021			2020			2020
Benefit on net loss	$	1,445,949			27.1	%	$	(1,024,640	)		25.3	%
Nondeductible expenses		6,678			0.1	%		1,271			—	%
Valuation allowance (expense)		(1,126,449	)		(21.1	)%		1,023,369			25.3	%
Other items		-			0.0	%		-			0.0	%
Tax expense (benefit)/effective rate	$	326,178			6.1	%	$	-			0.0	%

The significant components of the Company’s deferred tax liabilities and assets as of December 31, 2021 and December 31, 2020 are as follows:

	As of December 31,
	2021			2020
Deferred tax liabilities:
Tax expense for internally developed software	$	-		$	1,814
Deferred vendor stock compensation		(261,323	)		-
Tax depreciation in excess of book		-			2,916
Total deferred tax liabilities		(261,323	)		4,730
Deferred tax assets:
Loss carryforwards		2,101,401			3,913,579
Step up in basis at contribution to C-Corp		461,078			511,052
Stock option expense		669,959			124,876
Step up in basis - purchase of non-controlling interest		42,529			49,950
Allowance for credit losses		16,539			33,466
Unrealized loss on securities		216,284			-
Accrued liabilities		-			20,573
Total deferred tax asset		3,507,790			4,653,496
Tax rate change		-			-
Valuation allowance		(3,246,467	)		(4,658,226	)
Net deferred tax asset	$	-		$	-

As a result of various equity transactions prior to the incorporation, the former members of the Predecessor recognized taxable gains associated with redemption consideration and/or deficit capital accounts totaling approximately $5.25 million. In accordance with ASC 740-20-45-11, the Company accounted for the tax effect of the step up in income tax basis related to these transactions with or

among shareholders and recognized a deferred tax asset and corresponding increase in equity of approximately $1.91 million. Federal net operating loss carryforwards of approximately $512,000 related to 2015, $3,850,000 related to 2016, $2,977,000 related to 2017, $1,408,000 related to 2018, $2,033,000 related to 2019, and $3,091,000 related to 2020 will expire in 2035, 2036 ,2037 , 2038, respectively and net operating loss generated after January 1, 2018 will not expire. The Company's federal and state tax returns for the 2017 through 2020 tax years generally remain subject to examination by U.S. and various state authorities.