FEDERAL INCOME TAX

9 Months Ended

Jun. 30, 2022

FEDERAL INCOME TAX

FEDERAL INCOME TAX

NOTE 5 – FEDERAL INCOME TAX

The Company accounts for income taxes under ASC 740-10, which provides for an asset and liability approach of accounting for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributed to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts calculated for income tax purposes. The provision (benefit) for income taxes for the years ended September 30, 2022 and 2021 assumes a 21% effective tax rate for federal income taxes.

At June 30, 2022 and September 30, 2021, the Company had approximately $3,280,000 and $2,343,000, respectively, in federal and state tax loss carryforwards that can be utilized in future periods to reduce taxable income. Pursuant to Internal Revenue Code Section 382, the future utilization of our net operating loss carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or that could occur in the future. The components of income tax expense for the nine months ended June 30, 2022 and 2021 consist of the following:

	2022			2021
Federal tax statutory rate		21.0	%		21.0	%
Temporary differences		2.6	%		-3.0	%
Permanent differences		-17.2	%		-7.1	%
Valuation allowance		-6.4	%		-10.9	%
Effective rate		0.0	%		0.0	%

Significant components of the Company’s deferred tax assets as of June 30, 2022 and September 30, 2021 are summarized below.

	2022			2021
Net operating loss carryforwards	$	3,280,000		$	2,343,000
Temporary differences		18,000			(62,000	)
Permanent differences		(118,000	)		(585,000	)
Valuation allowance		(3,180,000	)		(1,696,000	)
	$	-		$	-

The Company provides for a valuation allowance when it is more likely than not that it will not realize a portion of the deferred tax assets. The Company has established a valuation allowance against the net deferred tax asset due to the uncertainty that enough taxable income will be generated in those taxing jurisdictions to utilize the assets. Therefore, we have not reflected any benefit of such deferred tax assets in the accompanying financial statements. Our net deferred tax asset and valuation allowance increased by $1,484,000 and $1,952,000 during the nine months ending June 30, 2022 and 2021, respectively.

To the extent that the tax deduction is included in a net operating loss carry forward and is in excess of amounts recognized for book purposes, no benefit will be recognized until the loss carry forward is recognized. Upon utilization and realization of the carry forward, the corresponding change in the deferred asset and valuation allowance will be recorded as additional paid-in capital.

Besides Form 1099s awaiting filing for the stock-based compensation included as a reconciling item for deferred tax assets, the Company did not identify any uncertain tax positions on tax returns that will be filed. The tax return for the fiscal year ended September 30, 2021 has not yet been filed and is open for potential examination.