NOTE 9 - INCOME TAXES
The provision for income taxes consists of the following for the year ended December 31,
| 2016 | 2015 | |||||||
| Federal income tax at U.S statutory rate (34%) and (25%) | $ | (416,608 | ) | $ | (120,334 | ) | ||
| State income tax | (104,892 | ) | 4,311 | |||||
| Add: change in valuation allowance | 523,908 | 102,028 | ||||||
| Total current deferred tax asset (liability) | $ | 2,408 | 13,995 | |||||
Deferred income taxes consist of the following for the year ended December 31,
| 2016 | 2015 | |||||||
| Bad debt provision | $ | 5,095 | $ | 4,767 | ||||
| Reserve for obsolete inventory | 6,573 | 3,983 | ||||||
| Insurance claim receivable | - | - | ||||||
| Total current deferred tax asset (liability) | $ | 11,668 | $ | 8,750 | ||||
| Net operating loss | $ | (579,174 | ) | $ | (111,725 | ) | ||
| Depreciation | - | (61 | ) | |||||
| (Valuation allowance) | 567,506 | 103,035 | ||||||
| Total long-term deferred tax asset (liability) | $ | (11,668 | ) | $ | (8,750 | ) | ||
Deferred income taxes are provided for the temporary differences between the carrying values of the Company’s assets and liabilities for financial reporting purposes and their corresponding income tax basis. The temporary differences give rise to either a deferred tax asset or liability in the consolidated financial statements, which is computed by applying current statutory tax rates to taxable and deductible temporary differences based upon the classification (i.e. current or non-current) of the asset or liability in the consolidated financial statements which relates to the particular temporary difference. Deferred taxes related to differences which are not attributable to a specific asset or liability are classified in accordance with the future period in which they are expected to reverse and be recognized for income tax purposes. The long-term deferred tax assets are fully valued as of December 31, 2016.
As of December 31, 2016, and 2015, the components of the Company’s deferred tax assets and liabilities primarily consist of temporary differences attributable to differing methods of depreciation, insurance claim receivables, net operating losses, allowances for obsolete inventory, and reserves for bad debt.
EBC’s management used 34% and 25% rate to calculate the deferred tax assets and the current tax provision. Because of the startup costs of EBC and the net operating losses earned by Bayhawk during the first few years in operation, the Company has had to pay very little federal income tax. In 2015 the Company paid no federal income tax and will have no tax obligation for 2016 as well. EBC management expects that the Company will not pay any federal income tax in 2017 as well, due to its significant net operating losses.