NOTE 3 - INCOME TAXES

 

Income tax provision (benefit) consists of the following for the years ended December 31, 2017 and 2016:

 

		Years Ended
		December 31,
		2017			2016
INCOME TAX PROVISION (BENEFIT):
Current
Federal		$	-		$	-
State, net of federal benefit			-			-
Valuation Allowance			-			-
Total current			-			-
Deferred:
Federal			73,540			(9,260)
State, net of federal benefit			(6,387)			(1,542)
Valuation Allowance			(67,153)			10,802
Total deferred			-			-
Total income tax provision (benefit)		$	-		$	-

 

A reconciliation of the income tax provision (benefit) by applying the statutory United States federal income tax rate to net income before income tax provision (benefit) is as follows:

 

		Years Ended December 31,
		2017						2016
		$			%			$			%
Federal income tax provision (benefit) at statutory rate		$	(12,542)			34.0	%	$	(10,028)			34.0	%
State tax expense net of federal tax benefit			(2,055)			5.6	%		(1,654)			5.7	%
Nondeductible expenses			297			(0.8)	%		-			0.0	%
Change in statutory tax rate			81,714			(220.8)	%		-			0.0	%
Change in valuation allowance			(67,414)			182.0	%		11,702			(39.7)	%
Income tax provision (benefit)		$	-			0.0	%	$	-			0.0	%

Deferred tax assets and liabilities are recognized for future tax consequences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the fiscal year in which the difference are expected to reverse. Significant deferred tax assets and liabilities, consist of the following:

 

		Years Ended
		December 31,
		2017			2016
DEFERRED TAX ASSETS, NET
Net operating loss carryforward		$	154,379		$	223,430
Accruals			8,929			7,292
Total deferred tax assets		$	163,308		$	230,722
Valuation allowance			(163,308)			(230,722)
Net deferred tax assets		$	-		$	-

 

At December 31, 2017, the Company has a federal net operating loss carry-forward of approximately $628,000 available to offset future federal taxable income. The Company’s remaining federal net operating loss carry-forward will expire between 2020 and 2037. Utilization of future net operating losses may be limited due to ownership changes under applicable sections of the Internal Revenue Code.

 

At December 31, 2017, the Company has a state net operating loss carry-forward of approximately $345,000 available to offset future state taxable income. The Company’s remaining state net operating loss carry-forward will expire between 2028 and 2037. Utilization of future net operating losses may be limited due to ownership changes under applicable sections of the California Revenue and Taxation Code.

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2017.

 

The valuation allowance at December 31, 2017 was $163,308, a decrease of $67,414 from December 31, 2016. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (TCJA). The TCJA makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the top U.S. federal corporate tax rate from 35% to 21%, effective January 1, 2018; (2) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; and (3) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

 

Under GAAP, we use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Due to the reduction in our federal corporate tax rate from 34% to 21%, we revalued our net deferred tax assets and lowered the amount by $81,714 in 2017. A corresponding decrease in the valuation allowance followed.

 

U.S. federal income tax returns after 2013 remain open to examination. Generally, state income tax returns after 2012 remain open to examination. No income tax returns are currently under examination. As of December 31, 2017 and 2016, the Company does not have any unrecognized tax benefits, and continues to monitor its current and prior tax positions for any changes. The Company recognizes penalties and interest related to unrecognized tax benefits as income tax expense. For the years ended December 31, 2017 and 2016, there were no penalties or interest recorded in income tax expense.