Income Taxes

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Income Taxes

Income tax expense (benefit) consists of the following:

Year Ended December 31	2016			2015
Current taxes - Federal	$	(729,000	)	$	903,000
Current taxes - State		(50,000	)		74,000
Deferred taxes - Federal		1,000			(4,000	)
Deferred taxes - State		(36,000	)		33,000
Income tax expense (benefit)	$	(814,000	)	$	1,006,000

The actual tax expense (benefit) attributable to income before taxes differs from the expected tax expense (benefit) computed by applying the U.S. federal corporate income tax rate of 34% as follows:

Year Ended December 31	2016			2015
Federal statutory rate		34.0	%		34.0	%
Stock-based awards		2.1			1.2
State taxes		2.1
Other permanent differences		(0.8	)		0.7
Impact of uncertain tax positions		(1.2	)		1.7
Valuation allowance		(1.5	)		-
Other		(0.1	)		(0.1	)
Effective federal income tax rate		38.8	%		39.6	%

Components of resulting noncurrent deferred tax assets (liabilities) are as follows:

As of December 31	2016			2015
Deferred tax assets
Accrued expenses	$	171,000		$	126,000
Inventory reserve		65,000			12,000
Stock-based awards		53,000			83,000
Reserve for bad debts		51,000			29,000
Net operating loss carryforwards		26,000			-
Other		38,000			9,000
Valuation allowance		(31,000	)		-
Total deferred tax assets	$	373,000		$	259,000
Deferred tax liabilities
Depreciation	$	(400,000	)	$	(322,000	)
Prepaid expenses		(175,000	)		(84,000	)
Prepaid compensation		(3,000	)		(52,000	)
Total deferred tax liabilities		(578,000	)		(458,000	)
Net deferred income tax liabilities	$	(205,000	)	$	(199,000	)

The Company evaluates all significant available positive and negative evidence, including the existence of losses in prior years and its forecast of future taxable income, in assessing the need for a valuation allowance. The underlying assumptions the Company uses in forecasting future taxable income require significant judgment and take into account the Company’s recent performance. The change in the valuation allowance for the years ended December 31, 2016 and 2015 was $31,000 and $0, respectively. The valuation allowance as of December 31, 2016, was the result of certain capital losses that the Company does not believe are more likely than not to be realized.

The Company has recorded a liability of $554,000 and $528,000 for uncertain tax positions taken in tax returns in previous years as of December 31, 2016 and 2015, respectively. This liability is reflected as Accrued Income Taxes on the Company’s Balance Sheets. The Company files income tax returns in the United States and numerous state and local tax jurisdictions. Tax years 2013 and forward are open for examination and assessment by the Internal Revenue Service. With limited exceptions, tax years prior to 2013 are no longer open in major state and local tax jurisdictions. The Company does not anticipate that the total unrecognized tax benefits will change significantly prior to December 31, 2017.

A reconciliation of the beginning and ending amount of the liability for uncertain tax positions is as follows:

Balance at January 1, 2015	$	486,000
Increases due to current year positions		18,000
Increases due to interest		24,000
Balance at December 31, 2015		528,000
Decreases due to current year positions		(2,000	)
Increases due to interest		28,000
Balance at December 31, 2016	$	554,000