Note 9 – Income Taxes
The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. For the fiscal year ended December 31, 2016 the Company measured our U.S. deferred tax assets at a statutory income tax rate of 34%.
On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted into law including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. The Company does not have any foreign earnings and therefore, we do not anticipate the impact of a transition tax. We have remeasured our U.S. deferred tax assets at a statutory income tax rate of 21%. Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are expected over the next 12 months, we consider the accounting of any transition tax, deferred tax re-measurements, and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions. We expect to complete our analysis within the measurement period in accordance with SAB 118, and no later than fiscal year end December 31, 2018.
During 2017, the Company incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward was approximately $1,589,930 at December 31, 2017 and $169,240 at December 31, 2016 and will begin to expire in the year 2036.
The Company had deferred income tax assets as of December 31, 2017 and 2016 as follows:
| December 31, 2017 |
December 31, 2016 |
|||||||
| Loss carryforwards | $ | 333,880 | $ | 57,540 | ||||
| Less – stock based compensation | (210,600 | ) | (11,760 | ) | ||||
| Less – derivative liabilities | (1,280 | ) | - | |||||
| Change in tax effected rates | (22,000 | ) | - | |||||
| Less - valuation allowance | (100,000 | ) | (45,780 | ) | ||||
| Total net deferred tax assets | $ | - | $ | - | ||||
Tax years from inception to fiscal year ended December 31, 2017 have been filed and are open for examination by the taxing authorities. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the period presented. The Company had no accruals for interest and penalties at September 30, 2017. The Company's utilization of any net operating loss carry forward may be unlikely as a result of its intended activities.