PARADISE INC

NOTE 7: PROVISION FOR FEDERAL AND STATE INCOME TAXES

The Company’s provision for income taxes was as follows:

	2016		2015

Current Federal Taxes	$	522,999	$	102,950
Current State Taxes		85,313		55,651

Current Provision		608,312		158,601

Deferred Federal Taxes		48,060		132,743
Deferred State Taxes		5,131		14,172

Deferred Provision		53,191		146,915

Total Provision	$	661,503	$	305,516

The income tax provision differs from the amount of tax determined by applying the Federal statutory rate as follows:

	2016		2015

Statutory tax	$	601,245	$	278,213
State income tax, net of federal tax		64,192		29,703
Nondeductible expenses		(23,774)		(2,400)
Other		19,840		-

	$	661,503	$	305,516

Net deferred tax assets and liabilities were comprised of the following:

	2016		2015

Current deferred tax assets (liabilities):
Allowance for Sales Returns and Related Provision for Return of Finished Goods	$	110,819	$	92,294
Inventory Valuation		244,468		269,204
Deferred Compensation Trust Expense		-		-
Prepaid Expenses		(112,188)		(119,664)

Total deferred tax assets - current	$	243,099	$	241,834

Non current deferred tax assets (liabilities):
Tax over Book Depreciation and Amortization	$	(369,581)	$	(315,125)

Total deferred tax liabilities - noncurrent	$	(369,581)	$	(315,125)

Net deferred tax liability	$	(126,482)	$	(73,291)

The Company follows Accounting Standards Codification Topic 740, “Income Taxes” (“ASC Topic 740”). This standard provides interpretative guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the determination of the ultimate tax effects is uncertain. We record our tax provision based on current and future income taxes that will be due. In the determination of our provision, we have taken certain tax positions in the consideration of the effects of income and expenses that have been recognized and included in the accompanying consolidated financial statements that may or may not be recognized in the determination of current or future income taxes. We record a liability for these unrecognized tax benefits when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We review our liability for unrecognized tax benefits quarterly and adjust it in light of changing facts and circumstances, such as the outcome of tax audit.

As of December 31, 2016 and 2015, we do not expect that any of the tax positions taken by the Company, if challenged, would result in a significant tax liability.