| NOTE 7 - | INCOME TAXES |
On December 22, 2017 the Tax Cuts and Jobs Act of 2017 was signed into law. Effective for the tax years beginning after December 31, 2017, the U.S. federal corporate income tax rate has been lowered from 34% to 21%. This significant reduction in the corporate rate has a major impact on the amount of deferred tax assets and liabilities included in the balance sheet of the Company as of December 31, 2017. The impact of this change is included in the tax provision and reflected in the statutory rate reconciliation table below.
The Company’s income tax expense (benefit) for the years ended December 31, 2017 and 2016 consists of the following components:
| 2017 | 2016 | ||||||
| Current | |||||||
| Federal | $ | (114,137 | ) | $ | (196,758 | ) | |
| State | 1,600 | 1,600 | |||||
| (112,537 | ) | (195,158 | ) | ||||
| Deferred | |||||||
| Federal | 91,300 | 16,200 | |||||
| 91,300 | 16,200 | ||||||
| Income tax expense | $ | (21,237 | ) | $ | (178,958 | ) |
| The Company’s effective income tax expense (benefit) differs from the federal statutory amount because of the effect of the following items: |
| 2017 | 2016 | ||||||
| Federal tax statutory rate | 34.00% | 34.00% | |||||
| Effect of prior year (over) under provision | - 3.00% | - 4.00% | |||||
| Impact of reduced staturory rate effective 2018 on timing difference | - 42.00% | ||||||
| Timing and permanent differences | 1.00% | - 2.00% | |||||
| - 10.00% | 28.00% |
Deferred income taxes (benefit) reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and the tax effects of net operating losses that are available to offset future taxable income.
Significant components of the Company’s deferred tax assets (liabilities) at December 31, 2017 and 2016 consist of the following:
| 2017 | 2016 | ||||||
| Deferred tax assets: | |||||||
| Accounts receivable | $ | 21,500 | $ | 34,300 | |||
| Inventory | 14,500 | 56,500 | |||||
| Vacation accrual | 15,600 | 17,500 | |||||
| Net operating loss carryforwards | 1,301,700 | 1,307,300 | |||||
| Less valuation allowance | (1,301,700 | ) | (1,307,300 | ) | |||
| Deferred tax assets, net | $ | 51,600 | $ | 108,300 | |||
| Deferred tax liabilities: | |||||||
| Depreciation | (89,700 | ) | (65,400 | ) | |||
| Deferred tax assets (liabilities), net | $ | (38,100 | ) | $ | 42,900 |
In assessing the ultimate realization of deferred tax assets and liabilities, management considers whether it is more likely than not that some or all of them will not be realized. Based on the Company’s anticipation of fluctuations in the Company’s net earnings for state tax purposes, the Company has established a valuation allowance due to the uncertainty as to the realization of the net operating loss carryforwards. As of December 31, 2017, and 2016, the Company has approximately $14,725,000 and $14,785,300 of net operating loss carryforwards to offset certain future state taxable income, expiring in 2029.
The Company files a consolidated federal and separate company state income tax returns in the United States. As of December 31, 2017, the tax years that remain subject to examination are 2014 to 2017 for federal and 2014 to 2017 for state tax purposes.
The Company has reviewed its open tax positions and determined that no exposures exist that require an adjustment as of December 31, 2017 or 2016. While the Company believes that it has performed adequate procedures to identify all reasonably identifiable exposures, it is possible that exposures exist and that these exposures will need to be assessed and may potentially have a material impact on the Company’s consolidated financial statements.