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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

 

NOTE 14 – INCOME TAXES

For the years ended December 31, 2021 and 2020, pre-tax income (loss) was attributed to the following jurisdictions:

 

 

 

For the Years Ended December 31,

 

 

 

2021

 

 

2020

 

Domestic operations

 

$

1,248,943

 

 

$

(760,603

)

Foreign operations

 

 

1,689,505

 

 

 

150,315

 

 

 

$

2,938,448

 

 

$

(610,288

)

 

 

Set forth below is the provision (benefit) for income taxes for the years ended December 31:

 

 

 

For the Years Ended December 31,

 

 

 

2021

 

 

2020

 

Current:

 

 

 

 

 

 

 

 

Federal

 

$

-

 

 

$

(26,951

)

State

 

 

2,763

 

 

 

16,058

 

International

 

 

548,062

 

 

 

149,958

 

 

 

 

550,825

 

 

 

139,065

 

Deferred:

 

 

 

 

 

 

 

 

Federal

 

 

(81,341

)

 

 

(563,107

)

State

 

 

136,191

 

 

 

(180,059

)

International

 

 

-

 

 

 

357

 

 

 

 

54,850

 

 

 

(742,809

)

Total provision (benefit) for income taxes

 

$

605,675

 

 

$

(603,744

)

 

 

 

 

 

 

 

 

 

 

 

The reconciliation of the provision (benefit) for income taxes computed at federal statutory rates to the provision (benefit) for income taxes for the years ended December 31, 2021 and 2020, are as follows:

 

 

 

For the Years Ended December 31,

 

 

 

2021

 

 

2020

 

Provision at federal statutory rates (21% applied to earnings before income

   taxes)

 

$

617,074

 

 

$

(128,161

)

State income taxes, net of federal benefit

 

 

(105

)

 

 

7,685

 

Other permanent items

 

 

(60,997

)

 

 

(164,300

)

PPP loan forgiveness

 

 

(318,014

)

 

 

-

 

Stock based compensation

 

 

(399,635

)

 

 

(178,552

)

Research and development credits

 

 

(247,264

)

 

 

(364,843

)

Amortization of intangibles

 

 

112,007

 

 

 

132,934

 

Change in reserve for uncertain tax positions

 

 

771,672

 

 

 

48,492

 

Other

 

 

130,937

 

 

 

43,001

 

 

 

$

605,675

 

 

$

(603,744

)

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  Significant components of deferred taxes as of December 31, 2021 and 2020, were as follows:

 

 

 

For the Years Ended December 31,

 

 

 

2021

 

 

2020

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Reserves

 

$

51,147

 

 

$

23,735

 

Deferred compensation

 

 

246,542

 

 

 

166,740

 

Stock compensation

 

 

238,310

 

 

 

183,742

 

Deferred revenue

 

 

64,232

 

 

 

132,814

 

Inventories

 

 

184,802

 

 

 

212,226

 

Credits and loss carryforward

 

 

4,202,769

 

 

 

4,314,653

 

Total deferred tax assets before valuation allowance

 

 

4,987,802

 

 

 

5,033,910

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Property and equipment

 

 

(300,758

)

 

 

(229,042

)

Intangible assets

 

 

(593,254

)

 

 

(602,277

)

Other

 

 

(303,271

)

 

 

(327,288

)

Total deferred tax liabilities

 

 

(1,197,283

)

 

 

(1,158,607

)

Net deferred tax assets before valuation allowance

 

 

3,790,519

 

 

 

3,875,303

 

Valuation allowance

 

 

(149,487

)

 

 

(176,710

)

Net deferred tax assets

 

$

3,641,032

 

 

$

3,698,593

 

 

 

 

 

 

 

 

 

 

 

The Company files income tax returns in the U.S. federal jurisdiction, California, Arizona, Idaho, Massachusetts, Texas, and Utah and Germany and has open tax statutes for U.S. federal taxes for the years ended December 31, 2018 through 2021.  For California, the open tax statutes are for years December 31, 2017 through 2021, and for Germany, the open years include December 31, 2019 through 2020.

 

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those differences become deductible.  Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.  Management believes that it is more likely than not that the Company will realize the benefits of the net deferred tax assets as of December 31, 2021 and 2020.

 

On December 31, 2021, we had $3,641,032 in net deferred tax assets (“DTAs”). These DTAs include $2,255,726 of tax credit carryforwards and $1,878,586 related to net operating loss carryforwards that can be used to offset taxable income in future periods and reduce our income taxes payable in those future periods.  At this time, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize these DTAs. However, it is possible that economic conditions may decrease the likelihood that we will have sufficient taxable income in the future. Therefore, unless we are able to generate sufficient taxable income from our operations, a substantial valuation allowance to reduce our U.S. DTAs may be required, which would materially increase our noncash income tax expenses in the period the allowance is recognized and materially adversely affect our consolidated results of operations and financial condition.

 

The Company has federal NOL carryforwards of $7,174,000, of which $1,111,000 is attributable Pre-2017 NOLs that can offset 100% of taxable income in future years.  The Company may use these NOL carryforwards to offset federal taxable income in future years through 2037, when the last (Pre-2018) NOL carryforwards expire.  Of this amount, the Company also has a federal NOL carryforward generated in tax year ending December 31, 2021, of $1,095,000. The Company may use these NOL carryforwards indefinitely to offset 80% of federal taxable income in future years.  In addition, the Company has state NOL carryforwards of $4,241,000.  State NOLs will carry forward through at least 2039, and may be used to offset future state taxable income.

As of December 31, 2021 and 2020, the Company has $1,804,000 and $1,630,000, respectively, of federal tax credit carryforwards which begin to expire in 2026 and state credit carryforwards of $1,668,000 and $1,479,000, respectively, which carryforward indefinitely. 

 

 

As of December 31, 2021, unrecognized tax benefits associated with uncertain tax positions was $1,242,717, of which $20,200 is included in other accrued expenses and other liabilities, while $1,222,517 is included as a direct reduction on the net deferred tax assets on the accompanying consolidated balance sheets.  If recognized, this would affect the Company’s effective tax rate.

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

 

Unrecognized tax benefits balance on December 31, 2019

 

$

317,236

 

Gross increases for tax positions of the current year

 

 

54,452

 

Unrecognized tax benefits balance on December 31, 2020

 

 

371,688

 

Gross increases for tax positions of the prior year

 

 

762,124

 

Gross increases for tax positions of the current year

 

 

108,905

 

Unrecognized tax benefits balance on December 31, 2021

 

$

1,242,717

 

 

The liability for uncertain tax positions is reviewed quarterly and adjusted as events occur that affect potential liabilities for additional taxes, such as lapsing of applicable statutes of limitations, proposed assessments by tax authorities, negotiations with taxing authorities, identification of new issues, and enactment of new legislation, regulations, or promulgation of new case law.  Management believes that adequate amounts of tax and related interest, if any, have been provided for any adjustments that may result from these examinations of uncertain tax positions. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense.