12.

Income Taxes

Loss before income taxes was distributed geographically for the years ended December 31, as follows (in thousands):

	2015			2014			2013
Domestic	$	(7,783	)	$	(13,993	)	$	(12,877	)
Foreign		41			(228	)		(94	)

Total	$	(7,742	)	$	(14,221	)	$	(12,971	)

The provision for income taxes is as follows for the years ended December 31 (in thousands):

	2015			2014			2013
Current
Federal	$	-		$	-		$	-
State		2			3			2
Foreign		91			10			107
Change in deferred
Federal		(2,466	)		(4,213	)		(3,794	)
Federal valuation allowance		2,466			4,213			3,794
State		(252	)		(460	)		129
State valuation allowance		252			460			(129	)
Foreign		6			64			111
Foreign valuation allowance		(6	)		(64	)		(111	)

Total current	$	93		$	13		$	109

The differences between our effective income tax rate and the U.S. federal statutory federal income tax rate for the years ended December 31, are:

	2015			2014			2013
Amounts at statutory tax rates		34	%		34	%		34	%
Foreign losses taxed at different rates		-	%		(1	)%		-
Stock-based compensation		(1	)%		(2	)%		(3	)%
Other		(1	)%		(1	)%		(1	)%
Total		32	%		30	%		30	%
Valuation allowance		(33	)%		(31	)%		(31	)%
Effective tax rate		(1	)%		(1	)%		(1	)%

Significant components of the deferred tax asset balances at December 31 are as follows (in thousands):

	2015			2014
Deferred tax assets:
Accruals	$	1,109		$	1,053
Stock compensation		1,352			1,210
Net operating losses		17,190			14,681
Basis difference in fixed assets		7			2
Total deferred tax assets	$	19,658		$	16,946
Valuation allowance		(19,658	)		(16,946	)

Total net deferred tax assets	$	-		$	-

Valuation allowances are recorded to offset certain deferred tax assets due to management’s uncertainty of realizing the benefits of these items. Management applies a full valuation allowance for the accumulated losses of Neonode Inc., and its subsidiaries, since it is not determinable using the “more likely than not” criteria that there will be any future benefit of our deferred tax assets. This is mainly due to our history of operating losses. As of December 31, 2015, we had federal, state and foreign net operating losses of $48.6 million, $19.8 million and $0, respectively. The federal loss carryforward begins to expire in 2028, the California loss carryforward begins to expire in 2030 and the foreign loss carryforward is indefinite.

Utilization of the net operating loss and tax credit carryforwards is subject to an annual limitation due to the ownership percentage change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions. The annual limitation may result in the expiration of the net operating losses and tax credit carryforwards before utilization. As of December 31, 2015, we had not completed the determination of the amount to be limited under the provision.

As of December 31, 2015, we did not recognize $547,000 and $28,000 of federal and state deferred tax assets relating to excess tax benefits for stock-based compensation deductions. Unrecognized deferred tax benefits will be accounted for as a credit to additional paid-in capital when realized through a reduction in income taxes payable.

We follow the provisions of accounting guidance which includes a two-step approach to recognizing, de-recognizing and measuring uncertain tax positions. There were no unrecognized tax benefits for the years ended December 31, 2015, 2014 and 2013.

We follow the policy to classify accrued interest and penalties as part of the accrued tax liability in the provision for income taxes. For the years ended December 31, 2015, 2014 and 2013 we did not recognize any interest or penalties related to unrecognized tax benefits.

Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2015 and 2014, we had no accrued interest and penalties related to uncertain tax matters.

As of December 31, 2015, we had no uncertain tax positions that would be reduced as a result of a lapse of the applicable statute of limitations.

Payments related to the license agreement with Sony Corporation are net of 10% income tax withholding as required by the Japanese government under the Sweden and Japan international tax treaty. The amounts withheld may be used to offset future payables for income tax in Sweden. In the year ended December 31, 2015, $80,000 was withheld. In the years ended December 31, 2015, 2014 and 2013, $0, $0 and $42,000 were withheld, respectively.

We file income tax returns in the U.S. federal jurisdiction, California, Sweden, Japan, South Korea and Taiwan. The 1999 through 2014 tax years are open and may be subject to potential examination in one or more jurisdictions. We are not currently under any federal, state or foreign income tax examinations.