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9. INCOME TAXES
 12 Months Ended
Dec. 31, 2012
Notes to Financial Statements  
NOTE 9. INCOME TAXES

The provision for income taxes consists of:

 

    Year Ended December 31,  
    2012     2011  
             
Current tax expense            
Federal   $ 581,483     $ 196,890  
State     123,458       23,036  
                 
      704,941       219,926  
                 
Deferred tax expense (benefit)                
Federal     (45,512 )     258,888  
State     (5,488 )     36,112  
                 
      (51,000 )     295,000  
                 
Total   $ 653,941     $ 514,926  

 

The effective income tax rate differs from the federal statutory rate as follows:

 

    Year Ended December 31,  
    2012     2011  
             
Federal statutory rate     34.00 %     34.00 %
State taxes, net of federal benefit     4.10 %     4.74 %
Permanent differences     -1.96 %     0.36 %
Prior period adjustment     -0.94 %     -1.60 %
                 
      35.2 %     37.5 %

 

Permanent differences consist primarily of nondeductible meals and entertainment, nondeductible life insurance premiums, and tax deductions for domestic production activity.

 

Deferred tax assets and (liabilities) at December 31 consist of:

 

    2012     2011  
             
Accounts receivable   $ 5,000     $ 8,000  
Deferred gain on sale-leaseback     83,000       97,000  
Stock compensation     11,000       -  
Other     53,000       40,000  
                 
Total deferred tax assets     152,000       145,000  
                 
Prepaids     (34,000 )     (54,000 )
Inventories     (883,000 )     (851,000 )
Depreciation     (289,000 )     (345,000 )
                 
Total deferred tax liabilities     (1,206,000 )     (1,250,000 )
                 
Net deferred tax liability   $ (1,054,000 )   $ (1,105,000 )