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9. Income taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Note 9 – Income taxes

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act significantly changed U.S. income tax law by, among other things, reducing the U.S. federal income tax rate from 35% to 21%, transitioning from a global tax system to a modified territorial tax system, eliminating the domestic manufacturing deduction, reduction in the dividend received deduction, and limiting the tax deductions for interest expense and certain executive compensation.

The SEC issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of US GAAP in situations where a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. To the extent that a company’s accounting for the Tax Act is incomplete but it is able to provide a reasonable estimate, it must record a provisional amount in the financial statements. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740.

For the year-ended December 31, 2017, the Company recorded an estimate of the provisions of the Act and recognized a $378 discrete net tax benefit in our 2017 financial statements arising from revaluing our net deferred tax liabilities to reflect the new tax rate. As of December 31, 2018, there have been no changes to the provisional estimate.

The provision (benefit) for income taxes consists of the following:

		For the Years Ended December 31,
		2018				2017
Current:
Federal		$	(13	)		$	(359	)
State and local			249				193
Total current			236				(166	)
Deferred			(461	)			(292	)
Benefit for income taxes		$	(225	)		$	(458	)

A reconciliation of the U.S. federal statutory rate to the effective tax rate used in the provision for income taxes is as follows:

		2018								2017
		Amount				Percentage				Amount				Percentage
Federal income tax computed at the statutory rate		$	(695	)			21.0%			$	(274	)			34.0%
State and local tax, net			(47	)			1.4%				1				(0.1)%
Goodwill impairment			324				(9.8)%				–				0.0%
U.S. domestic manufacturers’ deduction & other permanent differences			147				(4.4)%				111				(13.8)%
Changes for tax positions of prior years			–				0.0%				118				(14.6)%
Change in tax rates (a)			(37	)			1.1%				(378	)			47.0%
Change in tax estimate			83				(2.5)%				(36	)			4.5%
Benefit for income taxes		$	(225	)			6.8%			$	(458	)			57.0%

(a)	Includes the estimated impact of the Act in 2017.

The tax effects of temporary differences giving rise to deferred income tax assets and liabilities are as follows:

		December 31,
		2018				2017
Deferred tax liabilities attributable to:
Accumulated depreciation and amortization		$	(2,062	)		$	(1,784	)
Total net deferred tax liabilities			(2,062	)			(1,784	)
Deferred tax assets attributable to:
Net operating losses			595				14
Capital loss carry-forward & investment impairment			115				122
Incentive compensation			448				255
Inventory			355				335
Allowances for doubtful accounts and discounts			109				161
Other			50				57
Total net deferred tax assets			1,673				944
Net deferred tax liabilities		$	(390	)		$	(840	)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

		2018				2017
Balance at January 1		$	181			$	63
Additions for tax positions of prior years			–				118
Release for tax positions of prior years			(118	)			–
Balance at December 31		$	63			$	181

Lifeway is subject to U.S. federal income tax as well as income tax in multiple state and city jurisdictions. With limited exceptions, our calendar year 2015 and subsequent federal and state tax years remain open by statute. The amount of unrecognized tax benefits that, if recognized, would impact the annual effective tax rate was not significant as of December 31, 2018 and 2017.

The amount of interest and penalties recognized in the consolidated statements of operations was $0 and $152 during 2018 and 2017, respectively. The amount of accrued interest and penalties recognized in the consolidated balance sheets was $19 and $171 at December 31, 2018 and 2017, respectively.