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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

(5) Income Taxes

 

Since inception, the Company has incurred losses from operations and as a result has not recorded income tax expense. Benefits related to net operating loss carryforwards and deferred items have been fully reserved because it is not more likely than not that the Company will achieve profitable operations. The difference between the total income taxes at the federal statutory rate for each of the years ended December 31, 2022 and 2021 and the fact that no income tax benefit was recorded in each of these years is attributable to the change in the valuation allowance recorded in each year.

 

 

The Tax Cuts and Jobs Act of 2017 (“TCIA”) amended IRC Section 174 to require capitalization of all research and development (“R&D”) costs incurred in tax years beginning after December 31, 2021. These costs are required to be amortized over five years if the R&D activities are performed in the U.S., or over 15 years if the activities were performed outside the U.S. For tax reporting purposes, the Company capitalized $609,000 of R&D expenses incurred as of December 31, 2022.

 

On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law in the United States. Among other provisions, the IRA includes a 15% corporate minimum tax rate which applies to certain large corporations and a 1% excise tax on corporate stock repurchases made after December 31, 2022. We do not expect the IRA to have a material impact on our consolidated financial statements.

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at December 31, 2022 and 2021 are presented below:

 

   2022   2021 
Deferred tax assets:          
Depreciation  $109,000   $106,000 
Allowance for bad debts   248,000    218,000 
Net operating loss carry-forwards   13,561,000    14,114,000 
Stock option expense   334,000    355,000 
Research and other credits   891,000    945,000 
Lease liability   99,000    138,000 
Amortization   130,000    - 
Total gross deferred tax assets   15,372,000    15,876,000 
           
Deferred tax liabilities:          
Lease liability   69,000    101,000 
Other temporary differences   -    22,000 
Total gross deferred tax liabilities   69,000    123,000 
           
Valuation allowance   (15,303,000)   (15,753,000)
Net deferred tax  $-   $- 

 

The reconciliation of the income tax expense (benefit) computed at the federal statutory tax rates to income tax expense (benefit) is as follows:

 

   2022   2021 
         
Income tax provision at federal statutory rate  $(561,000)  $(388,000)
Expired carryforwards and other   1,011,000    1,079,000 
Valuation allowance   (450,000)   (691,000)
Total income tax provision  $-   $- 

 

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon future taxable income during the period in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon its historical operating losses, utilization of deferred tax assets cannot currently be determined. Accordingly, the Company has recorded a full valuation allowance against the deferred tax assets due to the uncertainty regarding the future utilization of the deferred tax assets for all periods presented.

 

At December 31, 2022, the Company had net operating loss carryforwards for federal income tax purposes of approximately $63,370,000. Net operating loss carryforwards accumulated through December 31, 2017 of approximately $52,927,000 will expire in varying amounts from 2023 through 2037. Net operating losses generated since 2018, totaling approximately $10,443,000, will carry forward indefinitely, but cannot offset more than 80 percent of taxable income. Research and other credit carryforwards of approximately $891,000 are available to the Company to reduce income taxes payable in future years principally through 2040. The Company’s ability to utilize its net operating loss carryforwards and its current year tax credits in future periods could be subject to the 382 limitation. The Company will need to complete an analysis to determine whether its net operating losses are subject to the 382 limitation.