We account for income taxes according to the provisions of FASB ASC 740, Income Taxes, which prescribes an asset and liability approach for computing deferred income taxes.
Reconciliations of income taxes computed at the statutory federal rate to income tax expense for the years ended December 31, 2016 and 2015 are as follows:
| 2016 | 2015 | |||||||
| Tax benefit at the statutory rate of 34% | $ | (571,643 | ) | $ | (562,242 | ) | ||
| State income taxes, net of federal income tax | (51,448 | ) | (50,602 | ) | ||||
| Stock-based compensation | 27,705 | 101,823 | ||||||
| Change in federal NOL | 13,693 | 296 | ||||||
| Expiration of state NOL | 10,181 | 22,468 | ||||||
| Change in valuation allowance and other | 571,512 | 488,257 | ||||||
| Canadian income tax expense | 3,018 | 3,129 | ||||||
| Income tax expense | $ | 3,018 | $ | 3,129 | ||||
In 2016, the Company recorded Canadian income tax expense of $3,018. The Company does not have any material Canadian deferred tax assets or deferred tax liabilities.
As of December 31, 2016, we had net operating loss carryforwards for federal and state income tax reporting purposes amounting to approximately $10,371,000 and $1,567,000 which expire in varying amounts through the year 2036.
The components of our deferred tax asset (liabilities) at December 31, 2016 and 2015 are as follows:
| 2016 | 2015 | |||||||
| Tax effect of net operating loss carryforward | $ | 3,574,000 | $ | 3,487,000 | ||||
| Accrued liabilities | 3,369,000 | 2,902,000 | ||||||
| Property & equipment | (8,000 | ) | (8,000 | ) | ||||
| Capitalized software | (402,000 | ) | (427,000 | ) | ||||
| Other | 45,000 | 33,000 | ||||||
| Less valuation allowance | (6,578,000 | ) | (5,987,000 | ) | ||||
| Net deferred tax asset | $ | - | $ | - | ||||
A valuation allowance has been recognized to offset the entire effect of the Company’s net deferred tax asset as the realization of this deferred tax benefit is uncertain. The valuation allowance increased $591,000 for the year ended December 31, 2016.
The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years (2013-2016) in these jurisdictions. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations, or cash flows. Therefore, no reserves for uncertain income tax positions have been recorded.