NOTE 8 – INCOME TAXES
2017 U.S. Tax Reform
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “TCJA”) that significantly reforms the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The TCJA, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, effective as of January 1, 2018; limitation of the tax deduction for interest expense; limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely); modifying or repealing many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”; and repeal of the federal Alternative Minimum Tax (“AMT”).
The staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. In connection with the initial analysis of the impact of the TCJA, the Company remeasured its deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The remeasurement of the Company's deferred tax assets and liabilities was offset by a change in the valuation allowance.
The Company is still in the process of analyzing the impact to the Company of the TCJA. Where the Company has been able to make reasonable estimates of the effects related to which its analysis is not yet complete, the Company has recorded provisional amounts. The ultimate impact to the Company’s consolidated financial statements of the TCJA may differ from the provisional amounts due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the TCJA. The accounting is expected to be complete when the Company’s 2017 U.S. corporate income tax return is filed in 2018.
The Company’s tax expense differs from the “expected” tax expense for Federal income tax purposes, (computed by applying the United States Federal tax rate of 34% to loss before taxes), as follows:
The tax effects of the temporary differences between reportable financial statement income (loss) and taxable income (loss) are recognized as deferred tax assets and liabilities.
| For the Year Ended December 31, 2017 |
For the Year Ended December 31, 2016 |
||||||||
| Tax expense (benefit) at the statutory rate | $ | (444,293 | ) | $ | (703,624 | ) | |||
| State income taxes (benefit), net of federal income tax benefit | (90,843 | ) | (120,446 | ) | |||||
| Non-deductible expenses | 13,104 | 637,419 | |||||||
| Change in tax rate estimates | 222,925 | -- | |||||||
| Change in valuation allowance | 299,107 | 186,651 | |||||||
| Total | $ | — | $ | — | |||||
The tax effect of significant components of the Company’s deferred tax assets and liabilities at December 31, 2017 and December 31, 2016, are as follows:
| For the Year Ended December 31, 2017 |
For the Year Ended December 31, 2016 |
||||||||
| Deferred tax assets: | |||||||||
| Net operating loss carryforward | $ | 247,090 | $ | 141,780 | |||||
| Amortization and depreciation | 231,129 | -- | |||||||
| Provision for bad debt | 8,163 | 45,495 | |||||||
| Total gross deferred tax assets | 486,382 | 187,725 | |||||||
| Less: Deferred tax asset valuation allowance | (486,382 | ) | (187,725 | ) | |||||
| Total net deferred tax assets | $ | — | $ | — | |||||
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 tax assets will not be realized. The ultimate realization of deferred 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 tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
Because of the historical earnings history of the Company, the net deferred tax assets for 2017 and 2016 were fully offset by a 100% valuation allowance.
The 2017, 2016, and 2015 tax returns remain subject to audit by various Federal and State taxing authorities.