NOTE 12 – INCOME TAXES
Per FASB ASC 740-10, disclosure is not required of an uncertain tax position unless it is considered probable that a claim will be asserted and there is a more-likely-than-not possibility that the outcome will be unfavorable. Using this guidance, as of December 31, 2016, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company's 2016, 2015, 2014, 2013 and 2012 Federal and State tax returns remain subject to examination by their respective taxing authorities. Neither of the Company's Federal or State tax returns are currently under examination.
Components of deferred tax assets are as follows:
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| Current deferred tax asset: | ||||||||
| Stock based compensation | $ | 496,900 | $ | 97,000 | ||||
| Accrual to cash method accounting items | 1,135,700 | 525,100 | ||||||
| Less valuation allowance | (1,632,600 | ) | (622,100 | ) | ||||
| Net current deferred tax asset | - | - | ||||||
| Non-current deferred tax assets: | ||||||||
| Expected income tax benefit from NOL carry-forwards | 2,332,300 | 2,077,100 | ||||||
| Less valuation allowance | (2,332,300 | ) | (2,077,100 | ) | ||||
| Net non-current deferred tax asset | $ | - | $ | - | ||||
Income Tax Provision in the Consolidated Statements of Operations
A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows:
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| U.S. statutory federal tax rate | (34.0 | )% | (34.0 | )% | ||||
| State income taxes, net of federal tax benefit | (2.6 | )% | (3.5 | )% | ||||
| Shares issued for services | 9.4 | % | 3.3 | % | ||||
| Shares issued in a separation agreement | 0.0 | % | 0.0 | % | ||||
| Tax rate change | (0.9 | )% | 6.8 | % | ||||
| Deferred tax true-up | (8.1 | )% | 7.0 | % | ||||
| Other permanent differences | 1.9 | % | 1.4 | % | ||||
| Change in valuation allowance | 34.3 | % | 19.0 | % | ||||
| Effective income tax rate | 0.0 | % | 0.0 | % | ||||
Income Tax Provision in the Consolidated Statements of Operations
A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows:
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 reverse. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in the Consolidated Statement of Operations in the period that includes the enactment date.
The Company has available at December 31, 2016 unused federal and state net operating loss carry forwards totaling approximately $6.16 million that may be applied against future taxable income that expire through 2025. Management believes it is more likely than not that all of the deferred tax asset will not be realized. A valuation allowance has been provided for the entire deferred tax asset. The valuation allowance increased approximately $1,265,700 and $643,500 for the years ended December 31, 2016 and 2015, respectively.