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Note 7 - Income Taxes | 9 Months Ended
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Sep. 30, 2024
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | Note 7. Income Taxes Deferred tax assets and liabilities are recorded based on the difference between financial reporting and tax basis of assets and liabilities and are measured by the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Deferred tax assets are computed with the presumption that they will be realizable in future periods when taxable income is generated. Predicting the ability to realize these assets in future periods requires judgment by management. GAAP prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Income tax benefits that meet the “more likely than not” recognition threshold are recognized. The Company has recognized a deferred tax asset of approximately $4.7 million recorded net of a valuation allowance of approximately $2.9 million. Management considered the realizability of this asset in light of historical operating results and forecasted results, and determined that more likely than not that the Company will have taxable income in the future, and elected to decrease the valuation allowance by approximately $3.2 million during 2024. The Company reviews the assessment of the deferred tax asset and valuation allowance on an annual basis or more often when events indicate that a change to the valuation allowance may be warranted. Significant components of the Company's deferred tax asset are as follows for the nine months ended September 30, 2024 and year ended December 31, 2023.
|  | September 30, 2024 |  |  | December 31, 2023 |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 4,690,051 |  |  | $ | 4,686,000 |
Depreciation and amortization |  |  | 1,137,000 |  |  |  | 1,137,000 |
Non-cash compensation |  |  | 1,649,000 |  |  |  | 1,649,000 |
Other |  |  | 124,000 |  |  |  | 124,000 |
Total |  |  | 7,600,051 |  |  |  | 7,596,000 |
Valuation Allowance |  |  | (2,909,998 | ) |  |  | (6,092,000 | )
Deferred tax asset |  | $ | 4,690,053 |  |  | $ | 1,504,000 |
The tax provision for federal and state income tax is as follows for the nine months ended September 30, 2024 and 2023.
|  | Nine Months Ended September 30, 2024 |  |  | Nine Months Ended September 30, 2023 |
Current provision: |  |  |  |  |  |  |  |
Federal |  | $ | — |  |  | $ | — |
State |  |  | 210,000 |  |  |  | 222,524 |
|  |  | 210,000 |  |  |  | 222,524 |
Deferred provision: |  |  |  |  |  |  |  |
Federal income tax (benefit) |  |  | (3,186,053 | ) |  |  | — |
Income tax expense (benefit) |  | $ | (2,976,053 | ) |  | $ | 222,524 |
The reconciliation of federal income tax computed at the U.S. federal statutory tax rates to total income tax expense is as follows for the nine months ended September 30, 2024 and year ended December 31, 2023.
|  | Nine Months Ended September 30, 2024 |  |  | Nine Months Ended September 30, 2023 |
Income tax (benefit) at 21% |  | $ | (62,891 | ) |  | $ | (58,488 | )
Change in valuation allowance |  |  | (3,182,002 | ) |  |  | — |
Permanent and other differences |  |  | 58,840 |  |  |  | 58,488 |
State taxes |  |  | 210,000 |  |  |  | 222,524 |
Income tax expense (benefit) |  | $ | (2,976,053 | ) |  | $ | 222,524 |
At December 31, 2023, the Company had available net operating loss carryforwards of approximately $22.3 million. Net operating loss carryforwards ("NOLs") generated during or prior to 2017 are available to offset taxable income of future periods and expire 20 years after the loss was generated. Net operating loss carryforwards generated after 2017 do not expire. Our ability to use our NOLs during this period will be dependent on our ability to generate taxable income, and the NOLs could expire before we generate sufficient taxable income. Pursuant to Sections 382 and 383 of the Internal Revenue Code ("IRC"), federal and state tax laws impose significant restrictions on the utilization of net operating loss and other tax carryforwards in the event of a change in ownership of the Company. The Company does not expect IRC Sections 382 and 383 to significantly impact the utilization of its NOLs and other tax carryforwards. If we were to experience an "ownership change," as determined under Section 382 of the IRC, our ability to offset taxable income arising after the ownership change with NOLs arising prior to the ownership change would be limited, possibly substantially. An ownership change would establish an annual limitation on the amount of our pre-change NOLs we could utilize to offset our taxable income in any future taxable year to an amount generally equal to the value of our stock immediately prior to the ownership change multiplied by the long-term tax-exempt rate. In general, an ownership change will occur if there is a cumulative increase in our ownership of more than 50 percentage points by one or more "5% shareholders" (as defined in the IRC) at any time during a rolling three-year period. The schedule below outlines when the Company's net operating losses for 2017 and prior years were generated and the year they may expire.
Tax Year End |  | NOL |  |  | Expiration |
2005 |  | $ | 1,788,157 |  |  |  | 2025 |
2006 |  |  | 1,350,961 |  |  |  | 2026 |
2007 |  |  | 1,740,724 |  |  |  | 2027 |
2008 |  |  | 918,960 |  |  |  | 2028 |
2009 |  |  | 835,322 |  |  |  | 2029 |
2010 |  |  | 429,827 |  |  |  | 2030 |
2013 |  |  | 504,862 |  |  |  | 2033 |
2016 |  |  | 474,465 |  |  |  | 2036 |
2017 |  |  | 1,267,336 |  |  |  | 2037 |
Total |  | $ | 9,310,614 |  |  |  |  |
As of September 30, 2024, there are NOLs totaling approximately $13.0 million that have been generated since 2017 that do not expire, and can be carried forward to future year to offset taxable income. The schedule below outlines when the Company's net operating losses for 2018 and later years were generated.
Tax Year End |  | NOL |
2018 |  | $ | 4,410,916 |
2019 |  |  | 2,730,461 |
2020 |  |  | 2,272,315 |
2022 |  |  | 3,609,279 |
Total |  | $ | 13,022,971 |
Total loss carryforwards |  | $ | 22,333,585 |
Management is not aware of any tax positions that would have a significant impact on the Company's financial position or results of operations.

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