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Income Taxes
12 Months Ended
Dec. 31, 2019
Income Taxes  
Income Tax Disclosure

Note 5.  Income Taxes

The Company accounts for income taxes in accordance with ASC 740‑10‑25, “Accounting for Income Taxes”. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

On December 22, 2017, the Tax Cuts and Jobs Act (the TCJA), which significantly modified U.S. corporate income tax law, was signed into law by President Trump. The TCJA contains significant changes to corporate income taxation, including but not limited to the reduction of the corporate income tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and generally eliminating net operating loss carrybacks, allowing net operating losses to carryforward without expiration, one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits (including changes to the orphan drug tax credit and changes to the deductibility of research and experimental expenditures that will be effective in the future). Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain, including to what extent various states will conform to the newly enacted federal tax law.

The Company has not recorded the necessary provisional adjustments in the financial statements in accordance with its current understanding of the TCJA and guidance currently available as of this filing, but is reviewing the TCJA’s potential ramifications.

The Company has net operating loss carryforwards of approximately $6,105,000, which expire in the years 2020 through 2039. Management has determined that it is more likely than not that the net operating loss carryforward will not be fully utilized therefore a full valuation allowance has been provided. The Company’s net operating loss carryforwards have been limited, pursuant to the Internal Revenue Code Section 382, as to the utilization of such net operating loss carryforwards due to changes in ownership of the Company over the years. We have determined the Company has lost cumulatively $1,413,000 of deferred tax assets attributed to net operating loss carryforwards due to the change in ownership in 2008. The remaining $215,000 of deferred tax assets can only be utilized up to $21,500 per year (relating to the IRC382, limitation) through 2028.

 

 

 

 

 

 

 

 

 

    

2019

    

2018

Deferred tax assets:

 

 

  

 

 

  

Net operating loss carryforward

 

$

505,000

 

$

493,000

Allowance for doubtful accounts

 

 

 0

 

 

14,000

Revenue recognition

 

 

66,000

 

 

66,000

Less valuation allowance

 

 

(571,000)

 

 

(573,000)

Net deferred tax asset

 

$

 0

 

$

 —

 

The reconciliation of the Company’s effective tax rate differs from the Federal income tax rate of 21% and 34% for the years ended December 31, 2019 and 2018, respectively as a result of the following:

 

 

 

 

 

 

 

 

 

    

2019

    

2018

Tax (benefit) at statutory rate

 

$

1,500

 

$

(141,000)

State and local taxes, net of federal benefit

 

 

500

 

 

(69,000)

Permanent differences

 

 

 0

 

 

 —

Change in valuation allowance

 

 

(2,000)

 

 

210,000

Tax due

 

$

0

 

$

0

 

Federal and State/Local tax years remain open by statute, generally three years. There are no open Statutory Federal or State/Local audits at December 31, 2019.