Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Note 12 – Income Taxes

Prior to April 15, 2015, AgEagle Aerial Systems Inc. was treated as a disregarded entity for income tax purposes. Income taxes, if any, were the responsibility of the sole member. In April 2015, the Company was converted to a corporation.

The Company accounts for income taxes in accordance with FASB ASC Topic 740, Accounting for Income Taxes which requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carryforwards. As of December 31, 2019 and 2018, the total of all deferred tax assets was $2,779,100 and $1,400,620 respectively. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which cannot be determined. Because of the uncertainty surrounding the realization of the deferred tax assets the Company has established a valuation allowance of $2,779,100 and $1,400,620 for the years ended December 31, 2019 and 2018, respectively. The change in the valuation allowance for the years ended December 31, 2019 and 2018 was $1,378,480 and $501,548, respectively.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act decreases the U.S. corporate federal income tax rate from a maximum of 35% to a flat 21% effective January 1, 2018. The Act also includes a number of other provisions including, among others, the elimination of net operating loss carrybacks and limitations on the use of future losses, the repeal of the Alternative Minimum Tax regime and the repeal of the domestic production activities deduction. These provisions are not expected to have a material effect on the Corporation.

Given the significant complexity of the Act and anticipated additional implementation guidance from the Internal Revenue Service, further implications of the Act may be identified in future periods.

At December 31, 2019, the Company had a net operating loss carry forward of approximately $9,300,681 with $2,043,670 expiring in 2035-2037 and approximately a $7,257,011 of net operating loss carry forward with no expiration. Management has determined that a 100% valuation allowance be established against net operating losses where it is more likely than not that such losses will expire or will not be available before they are utilized.

The components of income tax benefit for the years ended December 31, 2019 and 2018 consist of the following:

	2019			2018
Deferred tax benefit:
Federal	$	(1,198,182	)	$	(435,942	)
State		(180,298	)		(65,606	)
Increase in valuation allowance	$	(1,378,480	)	$	(501,548	)

A reconciliation of income tax expense at the federal statutory rate to income tax expense at the Company’s effective rate for the years ended December 31, 2019 and 2018 is as follows:

	2019						2018
	Amount			Rate			Amount			Rate
Computed tax at the expected statutory rate	$	(1,182,446	)		21.00	%	$	(436,733	)		21.00	%
State and local income taxes, net of federal		(177,832	)		3.16	%		(65,606	)		3.16	%
Other non-deductible expenses		653			(0.01	)%		743			(0.04	)%
Other adjustments		(18,856	)		0.33	%		48			(0.00	)%
Change in valuation allowance		1,378,480			(24.48	)%		501,548			(24.12	)%
Income tax benefit	$	—					$	—

The temporary differences, tax credits and carryforwards that gave rise to the following deferred tax assets at December 31, 2019 and 2018 is as follows:

Deferred tax assets:	2019			2018
Deferred revenue	$	83,230		$	1,182
Property and equipment		7,452			6,221
Interest		33,247			(5,826	)
Goodwill amortization		(1,335	)		(17,876	)
Intangibles tax amortization		32,441			7,488
Stock options for consulting services employees and directors		85,019			32,083
Stock options for consulting services-related party		51,878			51,878
Common Stock for consulting services-related party		302,000			302,000
Merger Transaction Costs		(64,071	)		—
Warrant expense		2,194			2,194
Net operating loss carryforward		2,247,045			1,021,276
Total Deferred tax assets		2,779,100			1,400,620
Valuation allowance		(2,779,100	)		(1,400,620	)
Net Deferred tax assets	$	—		$	—