4. Income Taxes
At December 31, 2017, the Company had approximately $66,000 of research and development income tax credits available to reduce federal income taxes in future periods. The credits expire from 2033-2036. In addition, at December 31, 2017, the Company had approximately $843,000 of net operating loss carryforwards which will expire between 2033 and 2036.
The components of deferred tax assets and liabilities at December 31, were as follows:
|
|
| 2017 | 2016 |
| Accrued liabilities |
| $ 11,300 | $ 7,892 |
| Inventories |
| 1,300 | 16,197 |
| Federal income tax credits |
| 69,000 | 66,353 |
| Net operating loss carryforwards |
| 177,000 | 201,029 |
| Less valuation allowance |
| (258,600) | (47,379) |
| Total deferred tax assets, net |
| $ 0 | $ 244,092 |
Realization of the deferred tax asset is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards and the income tax carryforwards. Management determined in 2017 that it does not believe it is more likely than not that all of the net deferred tax assets will be realized. Therefore, a valuation allowance has been recorded for the full net deferred tax asset at December 31, 2017.
The differences between the provision (benefit) for federal income taxes and federal income taxes computed using the U.S. statutory federal income tax rate of 35% were as follows:
|
|
| 2017 | 2016 |
| Amount computed using the statutory rate |
| $ (69,900) | $ (75,739) |
| Other |
| 3,394 | 2,080 |
| Research and development credits |
| (3,062) | (10,500) |
| Federal tax rate change |
| 102,439 |
|
| Change in valuation allowance |
| 211,221 | 8,459 |
| Benefit for federal income taxes |
| $ 244,092 | $ (75,700) |
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications to existing law. We have completed the accounting for the effects of the Act during the quarter ended December 31, 2017. Our financial statements for the year ended December 31, 2017 reflect certain effects of the Act which includes a reduction in the corporate tax rate from 35% to 21% as well as other changes. As a result of the changes to tax laws and tax rates under the Act, we incurred incremental income tax expense of $102,439 during the year ended December 31, 2017, which consisted primarily of the remeasurement of deferred tax assets and liabilities from 35% to 21% and application of a full valuation allowance.
Should the Company have future accrued interest expense and penalties related to uncertain income tax positions, they will recognize those expenses in income tax expense.
The Company files federal income tax returns in the United States only. The Company is no longer subject to federal income tax examination by tax authorities for years before 2014. The Company has evaluated all tax positions for open years and has concluded that they have no material unrecognized tax benefits or penalties.