9 - INCOME TAXES

Income tax provision is summarized as follows:

	Year Ended December 31,
	2020			2019
Current:
Federal	$	-		$	-
State		4,000			-
		4,000			-
Deferred:
Federal		310,000			97,000
State		160,000			7,000
Decrease in valuation allowance		(470,000	)		(104,000	)
		-			-

Income tax provision	$	4,000		$	-

The actual income tax provision differs from the “expected” tax computed by applying the Federal corporate tax rate of 21% to the income before income taxes as follows:

	Year Ended December 31,
	2020			2019
“Expected” income tax benefit	$	286,000		$	204,000
State tax expense, net of Federal benefit		3,000			-
Foreign loss		-			(30,000	)
Decrease in valuation allowance		(470,000	)		(104,000	)
Other		185,000			(70,000	)
Income tax provision	$	4,000		$	-

The tax effects of temporary differences which give rise to significant portions of the deferred taxes are summarized as follows:

	December 31,
	2020			2019
Deferred tax assets:
Inventory reserves	$	1,420,000		$	1,758,000
Allowances for bad debts and returns		2,000			5,000
Accrued expenses		21,000			21,000
Asset valuation reserve		539,000			539,000
Net operating loss carry forwards		213,000			283,000
Other		72,000			160,000
Total deferred tax assets		2,267,000			2,766,000
Valuation allowance		(2,121,000	)		(2,587,000	)
		146,000			179,000
Deferred tax liabilities:
Deferred state taxes		(146,000	)		(179,000	)
Total deferred tax liabilities		(146,000	)		(179,000	)

Net deferred tax assets	$	-		$	-

As of December 31, 2020, we had approximately $660,000 and $842,000 in net operating loss carryforwards for federal and state income tax purposes, respectively. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. We consider the scheduled reversal of deferred tax assets, the level of historical taxable income and tax planning strategies in making the assessment of the realizability of deferred tax assets. We have identified the U.S. federal and California as our "major" tax jurisdiction. With limited exceptions, we remain subject to IRS examination of our income tax returns filed within the last three (3) years, and to California Franchise Tax Board examination of our income tax returns filed within the last four (4) years.

As a result of the implementation of ASC 740, we recognized no material adjustment to unrecognized tax benefits. At the adoption date of January 1, 2007, we had $795,000 of unrecognized tax benefits, all of which would affect our effective tax rate if recognized. At December 31, 2020 and 2019, we have $2,121,000 and $2,587,000 of unrecognized tax benefits, respectively. We will continue to classify income tax penalties and interest, if any, as part of interest and other expenses in our statements of operations. We have incurred no interest or penalties as of December 31, 2020 and 2019.