(10) Income Taxes

The Company’s income tax provision (benefit) for the years ended December 31, 2012, 2011, and 2010, consists of the following:

	Years Ended December 31
	2012			2011		2010
Current:
Federal	$	4,301,000		$	3,752,000	$	4,259,000
State	768,000			702,000		454,000
	5,069,000			4,454,000		4,713,000
Deferred:
Federal	699,000			396,000		191,000
State	(89,000		)	56,000		115,000
	610,000			452,000		306,000
Total income tax provision	$	5,679,000		$	4,906,000	$	5,019,000

At December 31, 2012, the Company had net operating loss carryforwards for federal income tax purposes of approximately $1.3 million, which are available to offset future taxable income and expire during the federal tax years ending December 31, 2019, through 2024. The future benefit of the federal net operating loss carryforwards will be limited to approximately $300,000 per year in accordance with Section 382 of the Internal Revenue Code.

The approximate tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows:

	December 31
	2012			2011
Current deferred tax assets:
Reserves	$	383,000		$	377,000
Inventory capitalization	205,000			230,000
Compensation programs	245,000			262,000
Retirement liability	55,000			72,000
Equity-based compensation	228,000			228,000
Total current deferred tax assets	$	1,116,000		$	1,169,000

Long-term deferred tax assets / (liabilities):
Excess of book over tax basis of fixed assets	$	(1,688,000	)	$	(1,421,000	)
Goodwill	(751,000		)	(691,000		)
Intangible assets	(69,000		)	(146,000		)
Total long-term deferred tax liabilities	(2,508,000		)	(2,258,000		)
Net operating loss carryforwards	443,000			544,000
Deferred rent	67,000			64,000
Compensation programs	408,000			358,000
Total long-term deferred tax assets	918,000			966,000
Net long-term deferred tax liabilities	$	(1,590,000	)	$	(1,292,000	)

The amounts recorded as deferred tax assets as of December 31, 2012, and 2011, represent the amount of tax benefits of existing deductible temporary differences or carryforwards that are more likely than not to be realized through the generation of sufficient future taxable income within the carryforward period. The Company has total deferred tax assets of $2,034,000 at December 31, 2012, that it believes are more likely than not to be realized in the carryforward period. Management reviews the recoverability of deferred tax assets during each reporting period.

The actual tax provision for the years presented differs from the “expected” tax provision for those years, computed by applying the U.S. federal corporate rate of 34% to income before income tax expense as follows:

	Years Ended December 31
	2012		2011		2010
Computed “expected” tax rate	34.0	%	34.0	%	34.0	%
Increase (decrease) in income taxes resulting from:
State taxes, net of federal tax benefit	2.7		3.4		2.0
Meals and entertainment	0.1		0.1		0.1
R&D credits	(0.1	)	(0.4	)	(0.3	)
Domestic production deduction	(2.5	)	(2.8	)	(1.8	)
Non-deductible ISO stock option expense	0.1		0.1		0.1
Unrecognized tax benefits	(0.2	)	(2.4	)	1.0
Income of non-controlling interests	—		(1.0	)	(0.4	)
Other	0.2		0.3		0.1
Effective tax rate	34.3	%	31.3	%	34.8	%

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company has not been audited by any state for income taxes with the exception of returns filed in Michigan which have been audited through 2004, and income tax returns filed in Massachusetts for 2005 and 2006, and Florida for 2007, 2008, and 2009 (which are currently being audited). The Company’s federal tax return for 2008 has been audited. Federal and state tax returns for the years 2009 through 2011 remain open to examination by the IRS and various state jurisdictions.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (“UTB”) resulting from uncertain tax positions is as follows:

	Federal and State Tax
	2012			2011
Gross UTB balance at beginning of fiscal year	$	320,000		$	685,000
Increases for tax positions of prior years	—			40,000
Reductions for tax positions of prior years	(30,000		)	(405,000		)
Gross UTB balance at December 31	$	290,000		$	320,000

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of December 31, 2012, and 2011, are $290,000 and $320,000, respectively, for each year.

At December 31, 2012, and 2011, there was no accrued interest or penalties on uncertain tax positions.

At December 31, 2012, approximately $265,000 of the unrecognized tax benefits relate to tax returns of a specific state jurisdiction that are currently under examination. Accordingly, the Company expects a reduction of this amount during 2013, since the Company expects to resolve this examination in 2013..