8. Income Taxes

On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). The TJCA made broad changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) eliminating the corporate alternative minimum tax; (3) creating a new limitation on deductible interest expense; (4) creating the base erosion and anti-abuse tax, a new minimum tax; (5) limitation on the deductibility of certain executive compensation; (6) enhancing the option to claim accelerated depreciation deductions on qualified property, and (7) changing the rules related to uses and limitations of NOLs in tax years beginning after December 31, 2017.

Income tax benefit:

	Fiscal Year Ended
	March 31,			March 31,
	2021			2020
Current:
Federal	$	-		$	-
State and local		-			-

Total current tax provision		-			-

Deferred:
Federal		(26,788	)		-
State and local		(239	)		(409	)
Release of valuation allowance		-			(2,648,871	)

Total deferred tax benefit		(27,027	)		(2,649,280	)

Total benefit	$	(27,027	)	$	(2,649,280	)

The approximate values of the components of the Company’s deferred taxes on March 31, 2021, and 2020 are as follows:

	March 31,			March 31,
	2021			2020
Deferred tax assets (liabilities):
Net operating loss carryforwards	$	849,387		$	845,898
Tax credits		329,032			329,032
Charitable contributions		716			126
Legal damages		1,243,370			1,194,268
Allowance for doubtful accounts		1,576			1,575
Reserve for inventory obsolescence		120,815			115,517
Inventory capitalization (Net of section481A)		-			48,750
Vacation accrual		87,579			76,878
Warranty reserve		19,068			24,938
Deferred revenues		101,514			99,197
Stock options		15,689			15,683
AMT credit		-			-
Gain on Sale of Asset		345			-
Depreciation		5,949			(3,849	)
Deferred tax asset		2,775,040			2,748,013
Less valuation allowance		(100,000	)		(100,000	)

Deferred tax asset, net	$	2,675,040		$	2,648,013

The recognized deferred tax asset is based upon the expected utilization of its benefit from future taxable income. The Company has federal net operating loss (“NOL”) carryforwards of approximately $4,044,698 as of March 31, 2021. These carryforward losses are available to offset future taxable income and begin to expire in the year 2027. New Jersey State NOL carryforwards approximate $2,752,043 as of March 31, 2021. New Jersey State NOL carryforwards expire in 20 years, and certain of these amounts begin to expire in 2030.

The foregoing amounts are management’s estimates, and the actual results could differ from those estimates. Future profitability in this competitive industry depends on continually obtaining and fulfilling new profitable sales agreements and modifying products. The inability to obtain new profitable contracts or the failure of the Company’s engineering development efforts could reduce estimates of future profitability, which could affect the Company’s ability to realize the deferred tax assets.

A reconciliation of the income tax benefit provision at the statutory Federal tax rate of 21% for the years ended March 31, 2021, and 2020, respectively, to the income tax benefit provision recognized in the financial statements is as follows:

	March 31,			March 31,
	2021			2020

Income tax provision – statutory rate	$	120,704		$	438,314
Income tax expenses – state and local, net of federal benefit		(14	)		67
Permanent items		4,864			5,865
PPP Loan Forgiveness		(151,741	)		-
Change in value of warrants – permanent difference		-			15,330
True-up of prior year’s deferred taxes		-			(36,164	)
Valuation allowance		-			(3,059,107	)
Other		(840	)		(13,585	)
Income tax benefit	$	(27,027	)	$	(2,649,280	)