NOTE 8. INCOME TAXES

A reconciliation of the expected income tax benefit (provision) computed using the federal statutory income tax rate of 34% and New Hampshire statutory income tax rate of 8.5% to the Company’s effective income tax rate is as follows:

The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and deferred tax liabilities are presented below:

Deferred income taxes result from temporary differences between income tax and financial reporting computed at the effective income tax rate. The Company has established a valuation allowance against its net deferred tax assets due to the uncertainty surrounding the realization of such assets. Management periodically evaluates the recoverability of the deferred tax assets. At such time, if it is determined that it is more likely than not that deferred tax assets are realizable, the valuation allowance will be reduced.

The Company files U.S. federal and New Hampshire income tax returns. Our major tax jurisdictions are U.S. federal and the State of New Hampshire and are subject to tax examinations for the open years from 2014 through 2016.

As of December 31, 2016 and 2015, the Company had net operating loss carry-forwards for federal and state income tax purposes of approximately $1,521,000 and $1,827,000, respectively. Such carry-forwards may be used to reduce taxable income, if any, in future years subject to limitations of Section 382 of the Internal Revenue Code for federal income and New Hampshire tax purposes.