PHASERX, INC.

9. Income Taxes

As of December 31, 2016, we had a gross operating loss carryforward for federal income tax purposes of approximately $39.5 million, portions of which will begin to expire in 2028. Utilization of some of the federal operating loss and credit carryforwards are subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization. We have federal credits of approximately $1.3 million which will begin to expire in 2028. These tax credits are subject to the same limitations discussed above. Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets for federal taxes are as follows:

	December 31,
	2016		2015
	(in thousands)
Deferred tax assets:
Net operating loss carryforward	$	13,815	$	10,816
Capitalized research and development expenses		4,666		3,969
Research and other credits		1,275		1,021
Other		572		284
		20,328		16,090
Less: Valuation allowance		(20,328)		(16,090)
Total deferred tax assets	$	—	$	—

The income tax provision (benefit) related to continuing operations differs from the amounts computed by applying the statutory income tax rate of 35% to pretax loss as follows:

	Year Ended December 31,
	2016		2015
	(in thousands)
U.S. Federal provision (benefit)
Loss before provision for income taxes	$	(20,137)	$	(7,377)
At statutory rate of 35%	$	(7,047)	$	(2,582)
Change in valuation allowance		4,238		2,222
IPO costs		2,434		-
Tax credits		(254)		(188)
Stock based compensation		178		7
Nondeductible expenses		451		541
Total	$	—	$	—