NOTE 11. INCOME TAXES
Components of income tax benefit are as follows:
| Current income taxes: | For the Year Ended December 31, 2017 |
For the Year Ended December 31, 2016 |
||||||
| Federal | $ | - | $ | - | ||||
| State | - | (2,000 | ) | |||||
| Current provision for income taxes | (2,000 | ) | ||||||
| Deferred provision (benefit) for income taxes: | ||||||||
| Federal | - | - | ||||||
| State | - | - | ||||||
| Deferred provision (benefit) for income taxes | - | - | ||||||
| Provision for income taxes | $ | $ | (2,000 | ) | ||||
The non-current deferred tax assets and liabilities consist of the following:
| Deferred tax assets: | ||||||||
| 263A adjustment | $ | 14,326 | $ | 21,595 | ||||
| Accrued expenses | - | 305,024 | ||||||
| Stock compensation | 48,489 | 55,624 | ||||||
| Stock option | 44,922 | 60,970 | ||||||
| Amortization of intangibles | 2,796,867 | 3,791,944 | ||||||
| Net operating loss | 2,999,467 | 4,263,351 | ||||||
| Others | 12,660 | 11,887 | ||||||
| Total non-current deferred tax assets | 5,916,731 | 8,510,395 | ||||||
| Deferred tax liabilities: | ||||||||
| Prepaid expenses | (23,301 | ) | (24,908 | ) | ||||
| Depreciation on fixed assets | (853,089 | ) | (1,008,413 | ) | ||||
| Total non-current deferred tax liabilities | (876,390 | ) | (1,033,321 | ) | ||||
| Net non-current deferred tax assets/liabilities | 5,040,341 | 7,477,074 | ||||||
| Less: Valuation Allowance | (5,040,341 | ) | (7,477,074 | ) | ||||
| Total deferred tax liabilities | $ | - | $ | - | ||||
Reconciliation of the tax rate to the U.S. federal statutory tax rate which relate to the year ended December 31, 2017 and 2016 is as follows:
| For the Year Ended December 31, 2017 |
For the Year Ended December 31, 2016 |
|||||||
| Tax at federal statutory rate | $ | (80,922 | ) | $ | (3,104,489 | ) | ||
| State income taxes | - | (1,320 | ) | |||||
| Permanent differences | 118,253 | 196,479 | ||||||
| Change in valuation allowance | (2,436,734) | 3,191,794 | ||||||
| Other - State rate effect | (9,578 | ) | (272,768 | ) | ||||
| Change in status | 2,408,980 | 14,216 | ||||||
| Other | - | (25,912 | ) | |||||
| Provision for income taxes | $ | - | $ | (2,000 | ) | |||
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the 2017 Tax Cuts and Jobs Act (“2017 Tax Reform”). The 2017 Tax Reform significantly revises the future ongoing U.S. corporate income tax by, among other things, lowering U. S. corporate income tax rates and implementing a territorial tax system.
We have reasonably estimated the effects of the 2017 Tax Reform and recorded provisional amounts in our financial statements as of December 31, 2017. This amount is primarily comprised of the re-measurement of federal net deferred tax liabilities resulting from the permanent reduction in the U.S. statutory corporate tax rate to 21% from 35%. We also recorded a corresponding decrease in our valuation allowance for the impact of the 2017 Tax Reform of approximately $5.040 million, with minimal to no effect of our current statement of operations.
We will continue to monitor additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, so we may make adjustments to the provisional amounts (if any). However, management’s opinion is that future adjustments due to the 2017 Tax Reform should not have a material impact on the company’s provision for income taxes.