10. Income Taxes

12 Months Ended

May 31, 2024

Notes

10. Income Taxes:

10.  Income Taxes:

	2024			2023
Current tax provision:
Federal		$ 2,365,000		$ 1,710,000
State		1,000		2,000
		2,366,000		1,712,000
Deferred tax provision (benefit):
Federal		(444,000	)	(494,000	)
State		-		-
		(444,000	)	(494,000	)
		$ 1,922,000		$ 1,218,000

A reconciliation of provision for income taxes at the statutory rate to income tax provision at the Company's effective rate is as follows:

	2024	2023
Computed tax provision at the expected statutory rate	$2,293,400	$1,576,100
State income tax - net of Federal tax benefit	-	(1,600)
Tax effect of permanent differences:
Research tax credits	(407,675)	(283,600)
Foreign-derived intangible income deduction	(142,100)	(66,900)
Stock option costs	48,500	-
Other permanent differences	2,800	900
Other	127,075	(6,900)
	$1,922,000	$1,218,000
Effective income tax rate	17.6%	16.2%

Significant components of the Company's deferred tax assets and liabilities consist of the following:

	2024	2023
Deferred tax assets:
Allowance for doubtful receivables	$6,200	$6,200
Tax inventory adjustment	57,300	84,300
Allowance for obsolete inventory	188,100	273,200
Accrued vacation	163,000	136,600
Accrued commissions	-	9,800
Warranty reserve	100,700	62,700
R&D tax credit	-	-
R&D capitalization	1,479,800	678,500
Stock options issued for services	181,200	331,300
	2,176,300	1,582,600
Deferred tax liabilities:
Excess tax depreciation	(1,163,685)	(1,013,985)
Net deferred tax assets	$1,012,615	$568,615

Realization of the deferred tax assets is dependent on generating sufficient taxable income at the time temporary differences become deductible.  The Company provides a valuation allowance to the extent that deferred tax assets may not be realized.  A valuation allowance has not been recorded against the deferred tax assets since management believes it is more likely than not that the deferred tax assets are recoverable.  The Company considers future taxable income and potential tax planning strategies in assessing the need for a potential valuation allowance.  The amount of the deferred tax assets considered realizable however, could be reduced in the near term if estimates of future taxable income are reduced.  The Company will need to generate approximately $10.4 million in taxable income in future years in order to realize the deferred tax assets recorded as of May 31, 2024 of $2,176,300.

The Company and its subsidiary file consolidated Federal and State income tax returns.  As of May 31, 2024, the Company had State investment tax credit carryforwards of approximately $424,000 expiring through May 2029.