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Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

11.

Income Taxes

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

		2018				2017
Domestic		$	(1,583	)		$	(2,302	)
Foreign			(2,348	)			(3,249	)

Total		$	(3,931	)		$	(5,551	)

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

		2018				2017
Current
Federal		$	-			$	-
State			2				2
Foreign			11				(58	)
Change in deferred
Federal			(109	)			6,780
Federal valuation allowance			109				(6,780	)
State			(1	)			104
State valuation allowance			1				(104	)
Foreign			(322	)			(453	)
Foreign valuation allowance			322				453

Total current		$	13			$	(56	)

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:

		2018				2017
Amounts at statutory tax rates			21	%			34	%
Federal tax reform – deferred rate change			-				(170	)%
Accounting method adoption			-				11	%
Foreign losses taxed at different rates			(1	)%			(7	)%
Foreign withholding tax			-				1	%
Stock-based compensation			(7	)			-
Other			(2	)%			(1	)%
Total			11	%			(132	)%
Valuation allowance			(11	)%			133	%
Effective tax rate			-	%			1	%

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

		2018				2017
Deferred tax assets:
Accruals		$	71			$	111
Stock compensation			567				789
Net operating losses			14,982				14,288
Basis difference in fixed assets			-				-
Total deferred tax assets		$	15,620			$	15,188
Valuation allowance			(15,620	)			(15,188	)

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, 2018, we had federal, state and foreign net operating losses of $59.7 million, $20.0 million and $4.7 million, respectively. The federal loss carryforward begins to expire in 2028, and the California loss carryforward begins to expire in 2030. The foreign loss carryforward, which is generated in Sweden, does not expire.

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, 2018, we had not completed the determination of the amount to be limited under the provision.

We follow the provisions of accounting guidance which includes a two-step approach to recognizing, derecognizing and measuring uncertain tax positions. There were no unrecognized tax benefits for the years ended December 31, 2018 and 2017.

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, 2018 and 2017 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, 2018 and 2017, we had no accrued interest and penalties related to uncertain tax matters.

As of December 31, 2018, we had no uncertain tax positions that would be reduced as a result of a lapse of the applicable statute of limitations.

We file income tax returns in the U.S. federal jurisdiction, California, Sweden, Japan, South Korea, and Taiwan. The 2008 through 2017 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.