Note 7 - Income Taxes

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 7 – INCOME TAXES

The components of income before income taxes for the years ended  December 31, 2023 and 2022 are as follows:

	YEARS ENDED December 31,
	2023		2022
Domestic	$	666,000	$	2,350,000
Foreign		30,000		168,000
Income before income taxes	$	696,000	$	2,518,000

For the year ended  December 31, 2023 and 2022, the Company recorded an income tax expense of $431,000 and $963,000, respectively. 

The components of the provision for income taxes for the years ended  December 31, 2023 and 2022 consists of the following:

	YEARS ENDED December 31,
	2023			2022
Current:
Federal	$	940,000		$	355,000
State		115,000			60,000
Foreign		135,000			204,000
Total current		1,190,000			619,000
Deferred:
Federal		(672,000	)		290,000
State		(77,000	)		48,000
Foreign		(10,000	)		6,000
Total deferred		(759,000	)		344,000
	$	431,000		$	963,000

Significant components of the Company’s deferred tax liabilities and assets as of December 31, 2023 and 2022 are as follows:

	December 31,
	2023			2022
Deferred tax liabilities:
Property and equipment	$	(323,000	)	$	(708,000	)
Prepaid expenses		(409,000	)		(493,000	)
ROU asset		(12,000	)		(54,000	)
Total deferred tax liabilities		(744,000	)		(1,255,000	)
Deferred tax assets:
Net operating loss carryforwards		155,000			139,000
Accruals and allowances		438,000			167,000
Lease liabilities		12,000			61,000
Tax credits		4,000			3,000
Other		140,000			114,000
Capital loss carryover		646,000			646,000
Total deferred tax assets		1,395,000			1,130,000
Valuation allowance		(714,000	)		(697,000	)
Deferred tax assets net of valuation allowance		681,000			433,000
Net deferred tax liabilities	$	(63,000	)	$	(822,000	)

NOTE 7 – INCOME TAXES (CONTINUED)

The provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (21% in 2023 and 2022) to income before taxes as follows:

	YEARS ENDED December 31,
	2023		2022
Computed expected federal income tax	$	218,000	$	477,000
State income taxes, net of federal benefit		12,000		100,000
Foreign rate differential		38,000		—
Stock compensation		7,000		—
Non-deductible expenses		6,000		(25,000	)
Return to provision true-up		18,000		52,000
Uncertain tax positions		9,000		(17,000	)
Alternative minimum tax payable adjustment		—		208,000
Change in valuation allowance		17,000		—
Other deferred tax adjustments		106,000		168,000
	$	431,000	$	963,000

As of  December 31, 2023, the Company has net operating loss carryforwards for federal and state income tax return purposes of approximately $0 and $2,586,000 that begin to expire in 2029. 

Utilization of the net operating loss and credit carryforwards may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended (the “Code”), and similar state provisions. Any annual limitation may result in the expiration of net operating losses and credits before utilization.

At December 31, 2023, the Company has a capital loss carryforward for federal income tax return purposes of approximately $2,679,000,which start to expire in 2024. The Company has capital loss carryforwards for state income tax purposes of approximately $129,000, which starts to expire in 2024.

Due to uncertainty surrounding the realization of impairment losses, capital losses and foreign operating losses in future years, the Company has placed a valuation allowance against a portion of its net domestic and foreign deferred tax assets. The net valuation allowance increased by $17,000 and $0 for the years ended December 31, 2023 and 2022, respectively.

The tax return years 2019 through 2022 remain open to examination by the major domestic taxing jurisdictions to which the Company is subject. Net operating losses generated on a tax return basis by the Company for calendar years 1999 through 2004, 2009, 2010, 2012, 2014, 2015, 2016, 2017 and 2018 remain open to examination by the major domestic taxing jurisdictions.

NOTE 7 – INCOME TAXES (CONTINUED)

The Company has adopted accounting standards which prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a company’s income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Additionally, these accounting standards specify that tax positions for which the timing of the ultimate resolution is uncertain should be recognized as long-term liabilities. The Company has made no reclassifications between current taxes payable and long term taxes payable under this guidance.

As of December 31, 2023, the unrecognized tax benefit was $287,000 which, if recognized, will not affect the annual effective tax rate as these unrecognized tax benefits would increase deferred tax assets, which would be subject to a full valuation allowance. A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:

	YEARS ENDED December 31,
	2023		2022
Balance at beginning of year	$	278,000	$	295,000
Additions based on tax positions of prior years		9,000		(17,000	)
Balance at end of year	$	287,000	$	278,000

The Company’s policy for deducting interest and penalties is to treat interest as interest expense and penalties as income taxes. As of December 31, 2023, the Company had $58,000 accrued for the payment of penalties and zero interest related to unrecognized tax benefits. The Company does not expect any material changes to our uncertain tax positions within the next 12 months. The Company believes that it is reasonably possible that a decrease of up to $100,000 in unrecognized tax benefits related to foreign taxes may be necessary within the coming year.