d. Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of December 31, 2016 and 2015:
| 2016 | 2015 | |||||||
| Deferred tax assets: | ||||||||
| NOL carryover | $ | 76,600 | $ | 122,100 | ||||
| Accrued expense | - | 25,900 | ||||||
| Deferred tax liabilities: | ||||||||
| Depreciation | 5,000 | (5,400 | ) | |||||
| Valuation allowance | (64,200 | ) | (142,600 | ) | ||||
| Net deferred tax asset | $ | - | $ | - | ||||
The income tax provision differs from the amount of income tax determined by applying the U.S. income tax rate to pretax income from continuing operations for the year ended December 31, 2016 and 2015 due to the following:
| 2016 | 2015 | |||||||
| Book income | $ | (3,800 | ) | $ | (2,100 | ) | ||
| Depreciation | - | 100 | ||||||
| Accrued expenses | 945 | (1,200 | ) | |||||
| Valuation allowance | 2,855 | 3,200 | ||||||
| $ | - | - | ||||||
At December 31, 2016, the Company had net operating loss carryforwards of approximately $327,000 that may be offset against future taxable income as long as the "continuity of ownership" test is met. No tax benefit has been reported in the December 31, 2016 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.
The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company has identified its federal tax return and its state tax return in Colorado as "major" tax jurisdictions, as defined. The years 2013-2015 are open to examination by the IRS. No reserves for uncertain tax positions have been recorded.
The Company adopted changes issued by FASB which prescribed a recognition threshold and measurement attribute for financial statement recognition and measurement of an uncertain tax position taken or expected to be taken in a tax return. Under the guidance, an uncertain income tax position must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority.