
	Year Ended December 31,
(In thousands)	2018		2017
Sources of income (loss) before income taxes:
United States	$	2,288	$	(120	)
Foreign		1,291	1,028
Total income before income taxes	$	3,579	$	908


	Year Ended December 31,
(In thousands)	2018			2017
Current:
Federal	$	—		$	(164	)
State	31			30
Foreign	350			27
Total current	$	381		$	(107	)
Deferred:
Federal	$	427		$	(744	)
State	—			1
Foreign	(56		)	446
Total deferred	$	371		$	(297	)
Total provision (benefit) for income taxes	$	752		$	(404	)

A reconciliation of the statutory rate to the effective income tax rate is as follows:


	Year Ended December 31,
	2018		2017
Federal statutory rate	21.0	%	34.0	%
State income taxes, net of federal benefit	0.7		2.3
U.S. Subpart F income	0.4		1.6
Global Intangible Low Tax Income	6.1		—
Share-based compensation	(3.5	)	(19.8	)
Research and experimentation (R&D) credit	(5.0	)	(13.9	)
Foreign rate difference	0.6		13.6
Changes to U.S. federal income tax law	—		(93.8	)
Valuation allowance	(0.1	)	26.1
Other, net	0.8		5.4
Effective tax rate	21.0	%	(44.5	)%

Our effective tax rate for 2018 was negatively impacted by the Global Intangible Low Tax Income (GILTI) contained in the Tax Cuts and Jobs Act, which was enacted into law in December 2017, offset by the favorable benefits from U.S. federal R&D tax credits and excess tax benefits from employee share-based compensation.

Our effective tax rate for 2017 was favorably impacted by 93.8% due to a significant change in income tax law contained in the Tax Cuts and Jobs Act. Under the new tax law, the prior system of taxing U.S. corporations on the foreign earnings of their non-U.S. affiliates when such earnings were repatriated was replaced with a partial territorial system that provides a 100% dividends-received-deduction for foreign-source dividends received from 10%-or-more owned foreign corporations. The benefit from eliminating the previously recorded $2.7 million deferred tax liability for the undistributed earnings of our Singapore subsidiary was offset in part by the write-down of our deferred tax assets to reflect the 21% corporate income tax rate in the new tax law.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (“UTB”) is as follows:


	Year Ended December 31,
(In thousands)	2018			2017
Gross UTB balance at beginning of year	$	2,461		$	1,757
Additions based on tax positions related to the current year	167			139
Additions for tax positions of prior years	14			603
Reductions for tax positions of prior years	(100		)	(38		)
Reductions due to lapse of applicable statute of limitations	—			—
Gross UTB balance at end of year	$	2,542		$	2,461
Net UTB balance at end of year	$	477		$	159

The ending net UTB results from adjusting the gross balance for items such as federal, state, and non-U.S. deferred items, interest and penalties, and deductible taxes. The increase in our net UTB balance as of December 31, 2018 was due to reclassification of a non-U.S. deferred item that was previously recognized as a gross UTB in 2017. We have classified $334,000 of our net UTB as a current liability, because we anticipate having to pay this liability within the next year. The remaining net UTB is a long-term income tax reserve within our consolidated balance sheets. We recognize interest and penalties related to unrecognized tax benefits in tax expense. Accrued interest and penalties on a gross basis and estimated gross interest and penalties included in the above amounts for all years were inconsequential. The gross UTB at December 31, 2018 and 2017, if recognized, would favorably impact our effective tax rate.

We file income tax returns in the United States and various state and foreign jurisdictions. Our federal income tax returns for years after 2014 are still subject to examination by the Internal Revenue Service. We are no longer subject to state and local income tax examinations for years prior to 2014. The Inland Revenue Authority of Singapore is reviewing our 2016 and 2015 income tax returns, causing us to increase our gross UTB in 2017. We presently anticipate that the outcome of these audits will not have a significant impact on our financial position or results of operations.


	December 31, 2018					December 31, 2017
(In thousands)	Assets			Liabilities		Assets			Liabilities
Equipment, leaseholds and intangible amortization, net	$	202		$	448	$	217		$	387
Inventory allowances	573			—		563			—
Accrued expenses	250			—		139			—
Warranty accrual	170			—		165			—
Deferred revenue	267			—		155			—
Accounts receivable allowance	68			—		102			—
Federal and state tax credits	4,021			—		3,818			—
Federal and state net operating loss carry forwards	1,508			—		2,237			—
Share-based compensation	314			—		289			—
Other, net	54			—		50			—
Subtotal	7,427			448		7,735			387
Valuation allowance	(1,557		)	—		(1,606		)	—
Total deferred tax assets and liabilities	$	5,870		$	448	$	6,129		$	387

We have significant deferred tax assets as a result of temporary differences between taxable income on our tax returns and U.S. GAAP income, research and development tax credit carry forwards and federal, state and foreign net operating loss carry forwards. A deferred tax asset generally represents future tax benefits to be received when temporary differences previously reported in our consolidated financial statements become deductible for income tax purposes, when net operating loss carry forwards could be applied against future taxable income, or when tax credit carry forwards are utilized on our tax returns. We assess the realizability of our deferred tax assets and the need for a valuation allowance based on the guidance provided in current financial accounting standards.

Significant judgment is required in determining the realizability of our deferred tax assets. The assessment of whether valuation allowances are required considers, among other matters, the nature, frequency and severity of any current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, our experience with loss carry forwards not expiring unused and tax planning alternatives. In analyzing the need for valuation allowances, we first considered our history of cumulative operating results for income tax purposes over the past three years in each of the tax jurisdictions in which we operate, our financial performance in recent quarters, statutory carry forward periods and tax planning alternatives. In addition, we considered both our near and long-term financial outlook. After considering all available evidence (both positive and negative), we concluded that recognition of valuation allowances for substantially all of our U.S. and Singapore based deferred tax assets was not required. Our conclusions regarding the realizability of our deferred tax assets caused us to substantially reduce the valuation allowances recorded against our U.S. and Singapore based deferred tax assets in the fourth quarter of 2016, which resulted in recognition of a significant non-cash income tax benefit.

The remaining valuation allowances recorded against our deferred tax assets decreased by $49,000 in 2018, mainly for expiring state R&D tax credit and net operating loss carry forwards. Valuation allowances recorded against our deferred tax assets increased by $520,000 in 2017 for federal and state R&D tax credit carry forwards and state net operating loss carry forwards that we do expect to use. At December 31, 2018, we have federal R&D tax credit carry forwards of $4.2 million that will begin to expire in 2019 and a federal net operating loss carry forward of $5.8 million that will begin to expire in 2022, if unused.

See Note 1 for additional information related to our adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting.

Cash payments for income taxes, net of refunds received, were $29,000 in 2018 and $40,000 in 2017.