Note 8. Income Taxes
The components of income tax expense (benefit) are as follows:
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|
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For the Year Ended December 31, 2016 |
|
|
For the Year Ended December 31, 2015 |
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||
|
Current: |
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|
|
|
|
|
|
|
|
Federal |
|
$ |
— |
|
|
$ |
— |
|
|
State |
|
|
— |
|
|
|
— |
|
|
|
|
|
— |
|
|
|
— |
|
|
Deferred: |
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|
|
|
|
|
|
|
|
Federal |
|
|
— |
|
|
|
— |
|
|
State |
|
|
— |
|
|
|
— |
|
|
|
|
|
— |
|
|
|
— |
|
|
Total Income tax expense (benefit) |
|
$ |
— |
|
|
$ |
— |
|
Significant components of the Company's deferred income tax assets and liabilities are as follows:
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|
December 31, 2016 |
|
|
December 31, 2015 |
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Deferred tax assets: |
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|
|
|
|
|
|
|
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Net operating loss carryover |
|
$ |
224,381 |
|
|
$ |
623,287 |
|
|
Accounts receivable |
|
|
— |
|
|
|
5,301 |
|
|
Compensation |
|
|
80,850 |
|
|
|
58,800 |
|
|
Inventories |
|
|
— |
|
|
|
12,594 |
|
|
Total deferred tax assets |
|
|
305,231 |
|
|
|
699,982 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Property and equipment |
|
|
2,795 |
|
|
|
731 |
|
|
Total deferred tax liabilities |
|
|
2,795 |
|
|
|
731 |
|
|
Deferred tax assets, net |
|
|
308,026 |
|
|
|
700,713 |
|
|
Valuation allowance: |
|
|
|
|
|
|
|
|
|
Beginning of year |
|
|
(700,713 |
) |
|
|
(432,730 |
) |
|
(Increase) decrease during year |
|
|
392,687 |
|
|
|
(267,983 |
) |
|
Ending balance |
|
|
(308,026 |
) |
|
|
(700,713 |
) |
|
Net deferred tax asset |
|
$ |
— |
|
|
$ |
— |
|
A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. The Company recorded a valuation allowance in 2016 and 2015 due to the uncertainty of realization. The Company’s management believes that based upon its projection of future taxable operating income for the foreseeable future, it is more likely than not that the Company will not be able to realize the tax benefit associated with deferred tax assets. The net change in the valuation allowance during the years ended December 31, 2016 and 2015 was a decrease of $392,687 and an increase of $ 267,983, respectively.
At December 31, 2016, the Company had $641,088 of net operating loss carryforwards which will expire from 2017 to 2036.. These carry forward benefits may be subject to annual limitations due to the ownership change limitations imposed by the Internal Revenue Code and similar state provisions. The annual limitation, if imposed, may result in the expiration of net operating losses before utilization. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of December 31, 2016, tax years 2012 through 2015 remain open for IRS audit. The Company has received no notice of audit from the Internal Revenue Service for any of the open tax years.
A reconciliation of income tax computed at the U.S. statutory rate to the effective income tax rate is as follows:
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For the Year Ended December 31, 2016 |
|
|
For the Year Ended December 31, 2015 |
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||
|
Statutory U.S. federal income tax rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
Permanent differences |
|
|
-0.2 |
% |
|
|
-0.5 |
% |
|
Other reconciling items |
|
|
-101.8 |
% |
|
|
-1.2 |
% |
|
Change in valuation allowance |
|
|
67.0 |
% |
|
|
-33.3 |
% |
|
Effective income tax rate |
|
|
0.0 |
% |
|
|
0.0 |
% |