(8) Income Taxes
Components of income tax expense (benefit) for each year are as follows:
| 2017 | 2016 | 2015 | |||||||||||
| Current | |||||||||||||
| Federal | $ | (6,529) | $ | — | $ | (2,286) | |||||||
| State | (4,186) | 456 | 456 | ||||||||||
| Current income tax provision (benefit): | (10,715) | 456 | (1,830) | ||||||||||
| Deferred: | |||||||||||||
| United States: | |||||||||||||
| Federal | (246,458) | (526,922) | 168,371 | ||||||||||
| State | 35,597 | (149,678) | 7,691 | ||||||||||
| Deferred income tax provision (benefit), net | (211,317) | (676,600) | 176,062 | ||||||||||
| Total | $ | (222,032) | $ | (676,144) | $ | 174,232 | |||||||
Deferred tax assets as of December 30, 2017 and December 31, 2016 are as follows:
| December 30, 2017 | December 31, 2016 | |||||||
| Deferred Tax Assets: | ||||||||
| Net operating loss | ||||||||
| carryforwards | $ | 634,000 | $ | 363,000 | ||||
| Stock compensation | 478,000 | 628,000 | ||||||
| Credit carryforwards | 1,494,000 | 1,265,000 | ||||||
| Inventory | 235,000 | 369,000 | ||||||
| Accrued liabilities | 20,000 | 27,000 | ||||||
| Depreciation | 175,000 | 171,000 | ||||||
| Other | 3,000 | 4,000 | ||||||
| Gross deferred tax assets | 3,039,000 | 2,827,000 | ||||||
| Valuation allowance | — | — | ||||||
| Net deferred tax assets | $ | 3,039,000 | $ | 2,827,000 |
At December 30, 2017 and December 31, 2016 the Company had net operating loss carryforwards of approximately $2,367,000 and $923,000, respectively, available to offset future income for U.S. Federal income tax purposes.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“the Act”). The Act makes significant changes to the U.S. tax code including the following:
| · | Reduction of the corporate federal income tax rate from 35% to 21%; |
| · | Repeal of the domestic manufacturing deduction; |
| · | Repeal of the corporate alternative minimum tax; |
| · | Acceleration of business asset expensing. |
Due to the Act, U.S. deferred tax assets and liabilities were re-measured from 35% to 21% resulting in an additional expense of $680,000 in the fourth quarter of 2017.
A valuation allowance is required to be established or maintained when it is "more likely than not" that all or a portion of deferred tax assets will not be realized. The Company believes that it will generate sufficient future taxable income to realize the tax benefits related to the remaining deferred tax assets. Current projections of future taxable income, including the reversal of temporary differences, reflect the Company’s belief that it has attractive growth opportunities and a favorable cost structure. These projections support the conclusion that the Company will generate taxable income sufficient to utilize the losses before they expire.
A summary of the change in the deferred tax asset is as follows:
| 2017 | 2016 | 2015 | ||||||||||
| Balance at beginning of year | $ | 2,827,349 | $ | 2,150,749 | $ | 2,300,465 | ||||||
| Deferred tax (expense) benefit | 211,317 | 676,600 | (149,716) | |||||||||
| Balance at end of year | $ | 3,038,666 | $ | 2,827,349 | $ 2, 150,749 |
Income tax expense is different from the amounts computed by applying the U.S. federal statutory income tax rate of 34 percent to pretax income as a result of the following:
| 2017 | 2016 | 2015 | ||||||||||
| Tax at statutory rate | $ | (660,000) | $ | (384,000) | $ | 212,000 | ||||||
| State tax, net | ||||||||||||
| of federal benefit | 450 | 450 | 450 | |||||||||
| Net operating loss and | ||||||||||||
| credit carryforwards | (282,450) | (249,450) | (34,450) | |||||||||
| Effect of tax cuts and jobs act | 628,000 | — | — | |||||||||
| Other | 92,000 | (43,000) | (4,000) | |||||||||
| Total | $ | (222,000) | $ | (676,000) | $ | 174,000 |
The Company’s income tax filings are subject to review and examination by federal and state taxing authorities. The Company is currently open to audit under the applicable statutes of limitations for the years 2014 through 2017.