Note 7: Income Taxes
The provision for income tax for the years ended December 31 is as follows:
|
|
2016 |
|
|
2015 |
|
||
|
Current provision (benefit): |
|
|
|
|
|
|
|
|
Federal |
$ |
71,100 |
|
|
$ |
60,300 |
|
|
State |
|
2,400 |
|
|
|
(8,600 |
) |
|
Total current provision (benefit) |
|
73,500 |
|
|
|
51,700 |
|
|
Deferred provision (benefit): |
|
|
|
|
|
|
|
|
Federal |
|
1,071,300 |
|
|
|
741,700 |
|
|
State |
|
103,300 |
|
|
|
81,200 |
|
|
Valuation allowance |
|
0 |
|
|
|
(3,379,100 |
) |
|
Total deferred provision (benefit) |
|
1,174,600 |
|
|
|
(2,556,200 |
) |
|
Provision (benefit): |
|
|
|
|
|
|
|
|
Federal |
|
1,142,400 |
|
|
|
(2,115,700 |
) |
|
State |
|
105,700 |
|
|
|
(388,800 |
) |
|
Total provision (benefit) |
$ |
1,248,100 |
|
|
$ |
(2,504,500 |
) |
Income tax expense (benefit) at the statutory tax rate is reconciled to the overall income tax expense (benefit) as follows:
|
|
2016 |
|
|
2015 |
|
||
|
Federal income tax at statutory rates |
$ |
1,054,900 |
|
|
$ |
773,700 |
|
|
State income taxes, net of federal tax effect |
|
94,800 |
|
|
|
69,300 |
|
|
Permanent differences |
|
12,900 |
|
|
|
13,400 |
|
|
Nondeductible stock-based compensation |
|
81,800 |
|
|
|
41,400 |
|
|
Other |
|
3,700 |
|
|
|
(23,200 |
) |
|
Total |
|
1,248,100 |
|
|
|
874,600 |
|
|
Change in valuation allowance |
|
0 |
|
|
|
(3,379,100 |
) |
|
Provision (benefit) for income taxes |
$ |
1,248,100 |
|
|
$ |
(2,504,500 |
) |
Deferred income taxes are based on estimated future tax effects of differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes given the provision of enacted tax laws. The net deferred tax assets and liabilities as of December 31, 2016 and 2015 are comprised of the following:
|
|
2016 |
|
|
2015 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
$ |
611,800 |
|
|
$ |
1,833,100 |
|
|
Tax credit and other carryforwards |
|
491,700 |
|
|
|
413,800 |
|
|
Trade receivables |
|
80,000 |
|
|
|
205,200 |
|
|
Inventories |
|
60,800 |
|
|
|
70,600 |
|
|
Accrued vacation |
|
32,600 |
|
|
|
38,800 |
|
|
Intangibles and Goodwill |
|
113,800 |
|
|
|
0 |
|
|
Other |
|
23,500 |
|
|
|
20,800 |
|
|
Total deferred taxes |
|
1,414,200 |
|
|
|
2,582,300 |
|
|
Deferred tax liability: |
|
|
|
|
|
|
|
|
Accumulated depreciation for tax purposes |
|
(21,600 |
) |
|
|
(26,100 |
) |
|
Total deferred tax liabilities |
|
(21,600 |
) |
|
|
(26,100 |
) |
|
Net deferred tax asset, before allowance |
|
1,392,600 |
|
|
|
2,556,200 |
|
|
Valuation allowance |
|
0 |
|
|
|
0 |
|
|
Net deferred tax asset |
$ |
1,392,600 |
|
|
$ |
2,556,200 |
|
The Company has early adopted ASU 2016-9 relating to stock compensation and appropriately recorded the cumulative effect adjustment to retained earnings. At December 31, 2016, the Company had net operating loss carryforwards of approximately $1,050,000 for federal income tax purposes. The Company also had federal tax credit carryforwards related to research and development efforts of approximately $298,000. The net operating loss carryforwards and the research and development credits will expire over a period ending in 2032 and 2036 respectively. At December 31, 2016, there was approximately $193,000 of alternative minimum tax credits which have no expiration period. State tax loss carryforwards at December 31, 2016 are approximately $8,310,000 expiring over a period ending in 2032.
As of December 31, 2014 the Company had a full valuation allowance against deferred income tax assets. During the year ended December 31, 2015, the Company determined in its judgement, based upon all available evidence (both positive and negative), that it is more-likely-than-not that the net deferred tax assets will be realized. Hence, all deferred tax benefits were recognized and the full valuation allowance was removed as part of the effective tax rate.
Accounting for uncertainty in income taxes is based on a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We recognize in our consolidated financial statements only those tax positions that are more-likely-than-not of being sustained as of the adoption date, based on the technical merits of the position. Each year we perform a comprehensive review of our material tax positions.
Our policy is to recognize interest and penalties related to uncertain tax benefits in income tax expense. As we had no uncertain tax benefits during 2016 and 2015, we had no accrued interest or penalties related to uncertain tax positions in either year.
We and our subsidiaries are subject to the following material taxing jurisdictions: United States and Colorado. The tax years that remain open to examination by the Internal Revenue Service are 2013 and years thereafter. However, due to our net operating loss carryforwards from prior periods, the Internal Revenue Service could potentially review the losses back to 2000. The tax years that remain open to examination by the State of Colorado are 2012 and years thereafter.