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INCOME TAXES
 12 Months Ended
Dec. 31, 2023
INCOME TAXES  
INCOME TAXES

NOTE 16. INCOME TAXES

 

The Company’s income tax expense (benefit) consisted of:

 

 

 

 

 

 

For the Year Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Current:

 

 

 

 

 

 

Federal

 

$-

 

 

$-

 

State

 

 

-

 

 

 

-

 

Foreign

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

Deferred:

 

 

 

 

 

 

 

 

Federal

 

 

-

 

 

 

-

 

State

 

 

-

 

 

 

-

 

Foreign

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

Total

 

$-

 

 

$-

 

 

The Company’s net income (loss) before income tax consisted of:

 

 

 

For the Year Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

United States

 

$(3,402,592)

 

$(2,880,060)

Foreign

 

 

-

 

 

 

-

 

Total

 

$(3,402,592)

 

$(2,880,060)

 

Our income tax expense differed from the amounts computed by applying the United States statutory corporate income tax rate for the following reasons:

 

On December 22, 2017, the 2017 Tax Cuts and Jobs Act (“Tax Act”) was enacted into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. We are required to recognize the effect of the tax law changes in the period of enactment, such as re-measuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. The Tax Act did not give rise to any material impact on the consolidated balance sheets and consolidated statements of operations due to our historical loss position and the full valuation allowance on our net U.S. deferred tax assets.

 

The reconciliation of taxes at the federal and state statutory rate to our provision for income taxes for the years ended December 31, 2023 and 2022 was as follows:

 

 

 

For the Year Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

Income (Loss) before income tax

 

$(3,402,592)

 

$(2,880,060)

US statutory corporate income tax rate

 

 

28

%

 

 

28

%

Income tax expense computed at US statutory corporate income tax rate

 

 

(952,726)

 

 

(806,417)

Reconciling items:

 

 

 

 

 

 

 

 

Change in valuation allowance on deferred tax assets

 

 

2,121,178

 

 

 

553,005

 

Provision to prior year tax return

 

 

(1,188,884)

 

 

36,032

 

Incentive stock options and warrants

 

 

45,720

 

 

 

183,076

 

Gain Upon Debt Extinguishment

 

 

 

 

 

 

 

 

Meals and Entertainment

 

 

3,347

 

 

 

-

 

Other

 

 

(29,235)

 

 

34,304

 

Income tax expense (benefit)

 

$-

 

 

$-

 

Components of our deferred income tax assets (liabilities) are as follows:

 

 

 

December 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Deferred tax assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserve for Bad Debt

 

$418,000

 

 

$470,000

 

Inventory Reserve

 

 

27,000

 

 

 

27,000

 

Accrued Vacation

 

 

53,000

 

 

 

38,000

 

Warranty Reserve

 

 

8,000

 

 

 

19,000

 

Intangible Assets

 

 

181,000

 

 

 

257,000

 

Capitalized R&D

 

 

148,000

 

 

 

67,000

 

Stock-Based Compensation

 

 

1,246,000

 

 

 

-

 

Operating lease right-of-use liabilities

 

 

212,000

 

 

 

241,000

 

Net operating losses

 

 

5,568,000

 

 

 

4,639,000

 

Valuation Allowance

 

 

(7,539,000)

 

 

(5,332,000)

Deferred Tax Assets

 

 

322,000

 

 

 

426,000

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

 

(189,000)

 

 

(217,000)

Property and Equipment

 

 

(133,000)

 

 

(209,000)

 

 

 

(322,000)

 

 

(426,000)

 

 

 

 

 

 

 

 

 

Net Deferred Tax Assets and Liabilities

 

$-

 

 

$-

 

 

Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits, which are, on a more likely than not basis, not expected to be realized; in accordance with ASC-740 guidance for income taxes. As of December 31, 2023, we recorded a valuation allowance of $7,539,000 for the portion of the deferred tax assets that we do not expect to be realized. The valuation allowance on our net deferred taxes increased by $999,000 during the year ended December 31, 2023, primarily due to U.S. deferred tax assets incurred in the current year that cannot be realized. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.

 

For income tax purposes in the United States, we had available federal net operating loss carryforwards (“NOL”) as of December 31, 2023 and 2022 of approximately $20,796,000 and $17,479,000 respectively to reduce future federal taxable income. For income tax purposes in the United States, we had available state NOL carryforwards as of December 31, 2023 and 2022 of approximately $17,153,000 and $13,835,000 respectively to reduce future state taxable income. If any of the NOL’s generated prior to 2018 are not utilized, they will expire at various dates through 2037. NOL’s generated after 2017 carry forward indefinitely. There may be certain limitations as to the future annual use of the NOLs due to certain changes in our ownership.

 

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. As of December 31, 2023, and 2022, the management of the Company determined there were no reportable uncertain tax positions.