10. Income Tax
The Company accounts for income taxes under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 740, Income Taxes (“ASC 740”). Under ASC 740, 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. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
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| December 31, | ||||
|
| 2016 |
| 2015 | ||
| Income tax provision (benefit) at statutory rate of 35% | $ | (1,913,000) |
| $ | (489,000) |
| State taxes, at 3.3%, net of federal benefit |
| (180,000) |
|
| (49,000) |
| Nondeductible items |
| 478,000 |
|
| 438,000 |
| Subtotal |
| (1,615,000) |
|
| (100,000) |
| Change in valuation allowance |
| 1,615,000 |
|
| 100,000 |
| Income Tax Expense | $ | - |
| $ | - |
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| Net deferred tax assets and liabilities were comprised of the following: |
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| Net Operating Losses | $ | 2,898,000 |
| $ | 1,283,000 |
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|
|
|
|
|
|
| Valuation allowance |
| (2,898,000) |
|
| (1,283,000) |
| Deferred tax asset, net | $ | - |
| $ | - |
As of December 31, 2016, the Company has estimated tax net operating loss carryforwards of approximately $7.57 million, which can be utilized or expire through tax year 2036. Utilization of these losses may be limited in accordance with IRC Section 382 in the event of certain ownership shifts. The change in the valuation allowance for the years ended December 31, 2016 and 2015 was $1,615,000 and $100,000, respectively.