NOTE

N — INCOME TAXES

Due to Milestone Scientific's history of operating losses, a full valuation allowances have been provided for all of Milestone Scientific's deferred tax assets At

December 31,

2017

and

2016,

recognition was given to the utilization of the remaining net operating loss carryforwards in each of these periods.

In accordance with ASU

2015

17,

Income Taxes, deferred tax assets and liabilities have been classified, and treated retrospectively, as non-current. Deferred tax attributes resulting from differences between financial accounting amounts and tax bases of assets and liabilities at

December 31, 2017

and

2016

are as follows:

	2017			2016


Allowance for doubtful accounts-short term	$	3,000		$	4,000
Warranty reserve		20,000			36,000
Capital Gains		45,000
Deferred officers compensation		636,000			395,000
Depreciation and Amortization		181,000			135,000
Deferred revenue		478,000
Net operating loss carryforward		15,116,000			18,456,000
Subtotal		16,479,000			19,026,000
Valuation allowance	$	(16,479,000	)	$	(19,026,000	)

The deferred tax asset, before valuation allowance, has been calculated on rates anticipated to be effect when the temporary differences reverse.

Accordingly, based on the change in Federal tax rates promulgated in

December 2017,

effective

January 1, 2018,

the Company utilized a Federal rate of

21%

and accordingly existing deferred tax assets upon the tax law act being signed into law on

December 22, 2017,

the Company revalued its deferred tax assets which resulted in a tax provision charge of

$8,677,000,

offset by a corresponding decrease in the valuation allowance.

As of

December 31, 2017,

federal net operating loss carryforwards are approximately

$60,000,000.

As of

December 31, 2016,

and Milestone Scientific has federal net operating loss carryforwards of approximately

$56,530,000,

which is comprised solely of losses attributable Milestone Scientific and its subsidiaries. Net operating losses will be available to offset future taxable income, if any, through

December 2037.

As of

December 31, 2017,

state net operating losses were approximately

$24,500,000.

As of

December 31, 2016

Milestone, Scientific has state net operating loss carryforwards of approximately

$22,942,000.

Net operating losses will be available to offset future taxable income, if any, through

December 2037.

The utilization of Milestone Scientific's net operating losses

may

be subject to a substantial limitation due to the "change of ownership provisions" under Section

382

of the Internal Revenue Code and similar state provisions. Such limitation

may

result in the expiration of the net operating loss carry forwards before their utilization. Milestone Scientific has established a

100%

valuation allowance for all its deferred tax assets due to uncertainty as to their future realization.

As of

December 31, 2017,

and

2016,

state tax liability was approximately

$18,339

and

$13,000

respectively. Such expense was recognized in the accompanying consolidated financial statements.

A reconciliation of the statutory tax rates for the years ended

December 31,

is as follows:

	2017			2016
Statutory rate		34	%		34	%
State income tax - all states		6	%		6	%
Non-deductible Stock based compensation		-			3	%
Deferred provision for effect of change in Federal		164	%		-
		204	%		43	%
Valuation allowance		(204	%)		(43	%)
Effective tax rate		0	%		0	%

Accounting for uncertainties in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, disclosure and transition. At

December 31, 2017,

and

2016,

we had

uncertain tax positions that required recognition in the consolidated financial statements. Milestone Scientific's policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Statements of Operations.

interest and penalties are present for periods open. Tax returns for the

2014,

2015,

and

2016

years are subject to audit by federal and state jurisdictions.