12. INCOME TAXES

Income taxes are accounted for under the asset and liability method which requires deferred income taxes to reflect the future tax consequences attributable to differences between the tax and financial reporting bases of assets and liabilities. Deferred tax assets and liabilities recognized are based on the tax rates in effect in the year in which differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, based on available positive and negative evidence, it is “more likely than not” (greater than a 50% likelihood) that some or all of the net deferred tax assets will not be realized.

The (benefit) provision for income taxes is summarized as follows (amounts in thousands):


	2019		2018
Federal: Current	$	(66)	$	(387)
Deferred		(3,449)		(1,454)
State: Current		3		1
Deferred		(804)		(345)
	$	(4,316)	$	(2,185)

The benefit for income taxes for 2019 and 2018 included a benefit of $5,396,000 and $2,500,000 for continuing operations and a provision of $1,080,000 and $315,000, respectively, for discontinued operations.

The percentage effect of an item on the statutory tax rate in a given year will fluctuate based upon the magnitude of the pre-tax profit or loss in that year. The difference between the tax rate on income for financial statement purposes and the federal statutory tax rate was as follows:


	2019		2018
Statutory tax rate	(21.0)	%	(21.0)	%
Percentage depletion	—		(0.9)
Non-deductible expenses	0.1		0.4
Valuation allowance for tax assets	0.5		1.2
State income taxes, net of federal benefit	(4.5)		(4.5)
Other	1.2		(2.4)
	(23.7)	%	(27.2)	%

For financial statement purposes, deferred tax assets and liabilities are recorded at 25.74%, which represents a blend of the current statutory federal and states’ tax rates. The principal temporary differences and their related deferred taxes are as follows (amounts in thousands):


	2019		2018
Deferred tax assets
Reserves for self-insured losses	$	417	$	466
Accrued reclamation		1,972		1,445
Unfunded supplemental profit sharing plan liability		431		263
Asset valuation reserves		439		685
Future state tax credits		833		833
Net state operating loss carryforwards		812		226
Federal AMT carryforward		116		387
Federal NOL carryforward		3,226		468
Other		939		700
		9,185		5,473
Deferred tax liabilities
Depreciation		833		1,200
Deferred development		—		116
Other		285		443
		1,118		1,759
Net deferred tax asset before valuation allowance		8,067		3,714
Valuation allowance
Beginning balance		(300)		(200)
(Increase) decrease during the period		(100)		(100)
Ending Balance		(400)		(300)
Net deferred tax asset	$	7,667	$	3,414

The deduction of charitable contributions made during 2019 and 2018 was limited by the level of taxable income; however, no valuation reserve was established for the amount carried forward as the Company expects to be able to utilize these deductions in future years. The Tax Act repealed AMT and allows any existing AMT credit carryforwards to be used to offset regular tax obligations for a three year period beginning in 2018. Any AMT credit carryforwards that are not utilized to offset regular tax obligations will be 100 percent refundable by 2021. For State purposes, net operating losses can be carried forward for various periods for the states that the Company is required to file in. Of the $833,000 of state tax credits recorded by the Company at December 28, 2019 and December 29, 2018, $797,000 relates to California Enterprise Zone hiring credits earned in prior years. California has repealed the credit and limited its use to tax years through 2023. At December 28, 2019 and December 29, 2018 the Company carried a valuation reserve of $556,000 ($400,000 tax effected) and $430,000 ($300,000 tax effected), respectively, related to the carry forward of the California Enterprise Zone hiring credits due to the uncertainty that the Company will be able to utilize the credits prior to their expiration in 2023.

The realization of the deferred tax assets is subject to our ability to generate sufficient taxable income during the periods in which the temporary differences become realizable. In evaluating whether a valuation allowance is required, we consider all available positive and negative evidence, including prior operating results, the nature and reason of any losses, our forecast of future taxable income and the dates, if any, on which any deferred tax assets are expected to expire. These assumptions require a significant amount of judgment, including estimates of future taxable income. The estimates are based on our best judgment at the time made based on current and projected circumstances and conditions.

As a result of the evaluation of the ability to realize our deferred tax assets as of December 28, 2019, we concluded that it was more likely than not that all of our deferred tax assets would be realized to the extent not reserved for by a valuation allowance.

The Company accounts for uncertainty in income taxes recognized in its financial statements by applying GAAP’s recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The financial statement effects of a tax position are initially recognized when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold should initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon effective settlement with a taxing authority. There were no unrecognized tax benefits at either December 28, 2019 or December 29, 2018.

We file income tax returns in the United States at the Federal level and with various state jurisdictions. Federal and state income tax returns are subject to examination based upon the statute of limitations in effect for the various jurisdictions.