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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes
8.Income Taxes

 

On March 27, 2020, the CARES Act was enacted in response to COVID-19 pandemic. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. The CARES Act made various tax law changes including among other things (i) increased the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest (ii) enacted a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k), (iii) made modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes and (iv) enhanced recoverability of AMT tax credits. Given the Company’s full valuation allowance position, the CARES Act did not have a material impact on the financial statements.

 

The Company’s provision for income taxes is comprised of the following: 

 

   December 31, 
   2021   2020 
Current        
Federal  $
-
   $
-
 
State and local   9,951    387 
Total Current   9,951    387 
Deferred          
Federal   
-
    
-
 
State and local   
-
    
-
 
Change in Valuation Allowance   
-
    
-
 
Total Deferred   
-
    
-
 
Total Provision (Benefit)  $9,951   $387 

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:  

 

   December 31, 
   2021   2020 
Deferred Tax Assets:        
Net operating losses  $3,907,758   $4,098,329 
Share-based compensation   767,318    859,100 
Amortization of Intangible Assets   716,598    769,742 
Rent   56,251    15,272 
Tax Credits   62,969    62,969 
Other   266,986    160,762 
Subtotal   5,777,880    5,966,174 
Less Valuation Allowance:   (5,713,490)   (5,903,825)
Total Deferred Tax Assets   64,390    62,349 
Deferred Tax Liabilities:          
Property and equipment   (64,390)   (62,349)
Total Deferred Tax Liabilities   (64,390)   (62,349)
Net Deferred Tax Assets  $
-
   $
-
 

In assessing the Company’s ability to recover its deferred tax assets, the Company evaluated whether it is more likely than not that some portion or the entire deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. The Company considered all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Based on these factors including cumulative losses in recent years, the Company determined that its deferred tax assets are not realizable on a more-likely-than-not basis and has recorded a valuation allowance against its net deferred tax assets. The Company’s valuation allowance decreased by $190,335 during 2021. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s deferred income tax assets satisfy the realization standards, the valuation allowance will be reduced accordingly.

 

As of December 31, 2021, the Company has U.S. federal net operating loss carryforwards of approximately $17.4 million, of which $13.1 million may be subject to an annual limitation under Section 382 of the Internal Revenue Code. Of the $17.4 million, approximately, $16.2 million are available to offset 100% of future taxable income but expire in varying amounts between 2030 to 2037, if not utilized. The remaining $1.2 million is available to offset 80% of future taxable income but may be carried forward indefinitely.

The Company’s effective tax rate differs from the U.S. federal statutory income tax rate of 21% for 2021 and 2020 as follows:

 

   2021   2020 
Income tax (expense) benefit at federal statutory rate   21.0%   21.0%
Permanent Differences   0.2%   0.2%
State and local taxes   (4.5)%   1.9%
Valuation allowance   (14.3)%   (37.0)%
Deferred tax adjustment   2.6%   0.0%
Share based compensation   3.9%   14.6%
PPP Loan Forgiveness   (8.0)%   - 
Other   (0.2)%   (0.6)%
Effective tax rate   0.7%   0.1%

 

The Company applies the applicable authoritative guidance which prescribes a comprehensive model for the manner in which a company should recognize, measure, present and disclose in its financial statements all material uncertain tax positions that the Company has taken or expects to take on a tax return. As of December 31, 2021, the Company has no uncertain tax positions. As such, there are no uncertain tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within twelve months from December 31, 2021.

 

The Company files a federal income tax return and income tax returns in various state tax jurisdictions. The open tax years for the federal income tax return are 2018 through 2021. The state income tax returns have varying statutes of limitations. The open tax years relating to any of the Company’s federal and state net operating losses begin in 2011.