NOTE 8 – Income Taxes
The provision for income taxes for the years ended September 30, 2017 and 2016 are as follows:
| 2017 | 2016 | ||||
| Income tax provision | $ | 834,000 | $ | 723,500 | |
The effective income tax rate varies from the statutory federal income tax rate as follows:
| 2017 | 2016 | ||||
| Statutory federal income tax rate | 34.0 | % | 34.0 | % | |
| Increase (decrease): | |||||
| State income taxes, net of federal benefit | 5.7 | 5.8 | |||
| Nondeductible variable costs of shareholder usage | 2.9 | 4.0 | |||
| Other miscellaneous adjustments | (1.1) | 0.0 |
| ||
| Effective income tax rate | 41.5 | % | 43.8 | % | |
The Company uses the asset-liability method of computing deferred taxes in accordance with FASB ASC Topic 740. The difference between the effective tax rate and the statutory tax rates is due primarily to the effects of the graduated tax rates, state taxes net of the federal tax benefit and nondeductible variable costs of shareholder usage.
The Company has early adopted Accounting Standards Update (ASU) 2015-2017, Balance Sheet Classification of Deferred Taxes, to simplify and improve the usefulness of the financial statements. The amendments in this ASU require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position.
This ASU is effective for financial statements issued for annual periods beginning after December 15, 2018. Earlier application is permitted as of the beginning of an interim or annual reporting period. The Company has made this classification update as of October 1, 2016, and has applied this change retrospectively to all periods presented. Below is a table summarizing the changes in presentation for the periods ended September 30, 2017 and 2016:
| 2017 | 2016 | ||||
| Total assets – original presentation | $ | 17,888,598 | $ | 17,969,672 | |
| Total liabilities – original presentation | 3,243,357 | 4,416,733 | |||
| Total assets – change in presentation | (118,700) | (108,000) | |||
| Total liabilities – change in presentation | (118,700) | (108,000) | |||
| Total assets – updated presentation | 17,769,898 | 17,861,672 | |||
| Total liabilities – updated presentation | 3,124,657 | 4,308,733 | |||
As of September 30, 2017 and 2016, the Company’s deferred tax liability was $810,600 and $846,200, respectively. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. The majority of the balance is due to timing differences of depreciation expense, caused by the use of accelerated depreciation methods for tax calculations.