Income Taxes

12 Months Ended

Dec. 31, 2020

Information pertaining to the Company’s income (loss) before income taxes and the applicable provision for income taxes is as follows:


	December 31,
	2020		2019
Income (loss) before income taxes:
Domestic income (loss)	$	923,144	$	(1,847,586)
Foreign income (loss)	201,046		587,957
Total income (loss) before income taxes:	1,124,190		(1,259,629)
Provision (benefit) for income taxes:
Current:
Federal	$	(116,504)	$	(116,504)
State and local	10,928		(40,860)
Foreign	82,437		237,244
	(23,139)		79,880
Deferred:
Federal	$	131,036	$	121,898
State and local	(6,209)		12,700
Foreign	(116,007)		277,847
	8,820		412,445
Total provision (benefit) for income taxes:	$	(14,319)	$	492,325

During 2020 and 2019, the Company recorded a tax provision (benefit) of $(14,319) and $492,325, respectively, related to federal, state and local and foreign income taxes. The tax provisions include a tax benefit related to our Minimum Tax Credit carryforwards which are now realizable on a more-likely-than-not basis as such amounts will be refundable under the Tax Cuts and Jobs Act, partially offset with the accrual of foreign withholding taxes as the Company is no longer permanently reinvesting its foreign earnings.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, was enacted March 27, 2020. Among the business provisions, the CARES Act provided for various payroll tax incentives, changes to net operating loss carryback and carryforward rules, business interest expense limitation increases, and bonus depreciation on qualified improvement property. Additionally, the Consolidated Appropriations Act of 2021 was signed on December 27, 2020 which provided additional COVID relief provisions for businesses. The Company has evaluated the impact of both the Acts and has determined that any impact is not material to its financial statements.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:


	December 31,
	2020		2019
Deferred Tax Assets:
Allowance for receivables	$	34,820	$	52,439
Deferred revenue	352,087		383,920
Share-based compensation	23,647		25,127
Accrued expenses and other liabilities	331,497		232,777
Domestic net operating loss carryforwards	20,072,283		20,761,781
Foreign net operating loss carryforwards	187,114		187,328
Tax credit carryforwards	3,106,022		3,106,022
AMT tax credit carryforwards	—		116,504
Capital loss carryforwards	34,254		32,109
Fixed assets	155,942		179,534
Interest expense carryforwards	—		94,674
Lease liability	134,522		494,030
Intangibles	113,932		176,210
Sub-total	24,546,120		25,842,455
Valuation allowance	(23,222,032)		(23,613,642)
Total Deferred Tax Assets	1,324,088		2,228,813
Deferred Tax Liabilities:
Prepaid commissions and other	(113,706)		(134,618)
Tax method changes	(429,836)		(913,496)
Right of use asset	(105,116)		(387,740)
Deferred state income tax	(408,089)		(470,545)
Foreign withholding taxes	(449,816)		(496,093)
Total Deferred Tax Liabilities	(1,506,563)		(2,402,492)
Net Deferred Tax Liabilities	$	(182,475)	$	(173,679)

As of each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. In assessing the Company’s ability to recover its deferred tax assets, the Company evaluated whether it is more likely than not that some portion or the entire deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. The Company considered all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Based on these factors the Company determined that its U.S. deferred tax assets with the exception of its Minimum Tax Credit are not realizable on a more-likely-than-not basis and has recorded a full valuation allowance against such net deferred tax assets. The Company’s valuation allowance decreased by $0.4 million due to operations.

As of December 31, 2020, the Company had approximately $86.4 million, of federal net operating loss carryforwards, of which $81.8 million are set to expire beginning in 2030, if not utilized, and the remaining $4.6 million of which can be carryforward indefinitely. As of December 31, 2020, the Company had approximately $3.1 million of research and development tax credit carryforwards which expire at various dates beginning in 2023, if not utilized. Utilization of the net operating losses and credit carryforwards may be subject to a substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986. The annual limitation may result in the expiration of net operating losses and credit carryforwards before utilization.

The effective tax rate before income taxes varies from the current statutory federal income tax rate as follows:


	December 31,
	2020		2019
Tax at Federal statutory rate	$	236,080	$	(264,522)
Increase (reduction) in income taxes resulting from:
State and local taxes	242,992		(675,527)
Non-deductible expenses	5,702		9,100
GILTI	—		208,632
Stock compensation	—		6,236
Net effect of foreign operations	(96,210)		(10,012)
Uncertain tax positions	(1,706)		(71,119)
Change in valuation allowance	(474,956)		1,188,639
Foreign withholding taxes	19,299		165,099

Other	54,480		(64,201)
	$	(14,319)	$	492,325

Due to the change in U.S. federal tax law, the Company does not intend to indefinitely reinvest any of its unremitted foreign earnings. As of December 31, 2020, the Company has provided for additional foreign withholding taxes totaling approximately $0.4 million on approximately $4.3 million of undistributed earnings of its subsidiaries operating outside of the United States for which withholding tax applies.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:


	2020		2019
Balance at January 1,	$	81,400	$	134,246
Increases to tax positions taken in prior years	—		—
Expiration of statutes of limitation	(5,894)		(42,207)
Translation	—		(10,639)
Balance at December 31,	$	75,506	$	81,400

At December 31, 2020, $110,846 including interest, if recognized, would reduce the Company’s annual effective tax rate. As of December 31, 2020, the Company had approximately $35,340 of accrued interest. The Company believes it is reasonably possible that $6,462 of its unrecognized tax benefits will reverse within the next 12 months due to expiring statute of limitations. The Company records any interest and penalties related to unrecognized tax benefits in income tax expense.

The Company files federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2017 through 2020 tax years generally remain subject to examination by federal and most state tax authorities. In addition to the U.S., the Company’s major taxing jurisdictions include China, Taiwan, Japan, France and Germany.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References + Details