INCOME TAXES

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 6 - INCOME TAXES

As of December 31, 2022, the Company had federal and state net operating loss carry forwards of approximately $5,028,000. The federal net operating loss is available to the Company indefinitely and available to offset up to 80% of future taxable income each year.

On March 27, 2020, the CARES Act was enacted into law. The CARES Act is a tax and spending package intended to provide economic relief to address the impact of the COVID-19 pandemic. The CARES Act included several significant income and other business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOLs”) and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years. The Company was able to carryback the 2018 and the 2019 NOLs to 2017 tax year and generate an estimated refund of previously paid income taxes at an approximate 34% federal tax rate. This resulted in a net benefit of approximately $862,000 which was recorded in the first quarter 2020 of which a total of $806,800 was subsequently received. During the year ended December 31, 2022, the difference of $55,265 was reflected in income tax expense on the consolidated statement of operations.

Tax benefit for income taxes differs from the amount computed using the federal US statutory income tax rate as follows:

	Years Ended December 31,
	2022			2021
Tax benefit at U.S. statutory rate	$	(545,212	)	$	(409,203	)
State income taxes, net of federal benefit		(153,085	)		(25,607	)
Tax effect of foreign operations		2,285			47,428
Non-deductible items		(31,914	)		5
Valuation allowance		740,508			420,570
Other		55,265			(18,138	)
Income Tax Expense (Benefit)	$	67,847		$	15,055

The effective tax rate for the years ended December 31, 2022 and 2021, respectively, was (2.61%) and (0.77%) and the statutory tax rate was 25.39% in 2022 and 23.70% in 2021.

The income tax benefit for the years ended December 31, 2022 and 2021 consists of:

	2022			2021
Current:
Federal	$	55,278		$	—
State		800			823
Deferred:
Federal		(2,835	)		18,070
State		14,604			(3,838	)
Income Tax Expense (Benefit)	$	67,847		$	15,055

The tax effects of temporary differences and carry forwards that give rise to significant portions of deferred tax assets and liabilities consist of the following:

	Years Ended December 31,
Deferred tax assets:	2022			2021
Accruals and allowances	$	187,320		$	82,906
Stock based compensation		70,559			63,999
Net operating allowances		1,338,208			705,996
		1,596,087			852,901
Deferred tax liabilities:
Intangible assets		(285,379	)		(270,932	)
Valuation allowance		(1,596,087	)		(855,579	)
Net deferred tax assets and liabilities	$	(285,379	)	$	(273,610	)

Deferred tax assets are to be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred assets will not be realized. The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2022 and 2021. Since indefinite-lived assets cannot be used as a source of taxable income to support the realization of deferred tax asset, a valuation allowance was recorded against the deferred tax assets, and a net deferred tax liability or naked credit of approximately $285,000 and $274,000 is presented on the company’s balance sheet, respectively. The Company’s valuation allowance increased by $319,938 in 2022.

The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the Company believes that it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcome of examinations by tax authorities in determining the adequacy of its provision for income taxes.