Income Taxes

12 Months Ended

Dec. 31, 2018

Note 8.

Income Taxes

Deferred tax assets and liabilities result from temporary differences in the recognition of income and expense for tax and financial reporting purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows at December 31.

	2018			2017
Deferred tax assets
NOL carryforwards	$	781,000		$	1,038,000
General business credits carryforwards		288,000			244,000
Stock based compensation		92,000			64,000
UNICAP		56,000			30,000
Allowance for doubtful accounts		3,000			3,000
Reserve for obsolete inventories		6,000			12,000
Reserve for asset retirement		14,000			14,000
Property and equipment		(145,000	)		(159,000	)
		1,095,000			1,246,000
Valuation allowance		(1,095,000	)		(1,246,000	)
Net	$	-		$	-

The Tax Cuts and Jobs Act was enacted on December 22. 2017. The Act reduces the U.S, federal corporate tax rate from 35% to 21%. Accordingly, the Company modified the value of deferred tax assets and liabilities including the net operating loss carryover benefit at December 31, 2017. Prior to enactment of the new tax reform, the Company had total net deferred tax assets of $1,912,000 before full valuation reserve at December 31, 2017. Taking the new tax reform into consideration, the total net deferred tax assets was $1,246,000 before full valuation reserve at December 31, 2017.

A valuation allowance has been recorded against the realizability of the net deferred tax asset such that no value is recorded for the asset in the accompanying financial statements. The valuation allowance totaled $1,095,000 and $1,246,000 at December 31, 2018 and 2017, respectively.

The Company had net operating loss carryforwards available for federal and state tax purposes of approximately $3,700,000 and $4,900,000 at December 31, 2018 and 2017, respectively, which expire in varying amounts through 2038.

For the years ended December 31, 2018 and 2017, a reconciliation of the statutory rate and effective rate for the provisions for income taxes consists of the following:

	Percentage
	2018			2017
Federal statutory rate		21.0	%		35.0	%
State/city tax		1.9			24.0
Non-deductible expense		0.6			532.6
Valuation allowance		(21.6	)		(567.6	)
Effective rate		1.9	%		24.0	%

Components of the income tax provision are as follows:

	2018			2017
Current	$	17,642		$	1,921
Deferred:
NOL utilization/expiration under 2017 tax law		257,000			87,247
General business credits		(44,000	)		(23,087	)
Other temporary differences		(62,000	)		(43,756	)
Change in valuation allowance		(151,000	)		(20,404	)
Change in NOL benefit due to 2018 Tax Reform		-			691,695
Change in temporary differences due to 2018 Tax Reform		-			(25,595	)
Change in valuation allowance due to 2018 Tax Reform		-			(666,100	)
Total	$	17,642		$	1,921

The Company follows guidance issued by the Financial Accounting Standards Board (“FASB ASC 740”) with respect to accounting for uncertainty in income taxes. A tax position is recognized as a benefit only if it is “more-likely-than-not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than fifty percent likely of being realized on examination. For tax positions not meeting the “more-likely-than-not” test, no tax benefit is recorded.

The Company has no unrecognized tax benefits under guidance related to tax uncertainties. The Company does not anticipate the unrecognized tax benefits will significantly change in the next twelve months. Any tax penalties or interest expense will be recognized in income tax expense. No interest and penalties related to unrecognized tax benefits were accrued at December 31, 2018 and 2017.

The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. The Company is open to federal and state tax audits until the applicable statute of limitations expire. There are currently no federal or state income tax examinations underway for the Company. The tax years 2015 through 2018 remain open to examination by the major taxing jurisdictions in which the Company operates.