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INCOME TAXES
 12 Months Ended
Dec. 29, 2024
INCOME TAXES  
INCOME TAXES

NOTE 5 – INCOME TAXES

 

Income taxes are accounted for in accordance with ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events included in the financial statements or tax returns.

 

As of December 29, 2024, the Company has recorded total deferred tax assets of $616,000, primarily attributable to net operating loss carryforwards (NOLs) offset by temporary differences related to property and equipment. Management assesses the realizability of deferred tax assets annually and considers all available positive and negative evidence, including historical operating performance, taxable income projections, and reversal of deferred tax liabilities. Based on this evaluation, the Company has determined that sufficient uncertainty exists regarding the future realization of these deferred tax assets. Accordingly, a valuation allowance of $616,000 has been recorded as of December 29, 2024, reducing the net deferred tax asset balance to zero. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

The Company will continue to assess the need for a valuation allowance in future periods. Should circumstances change and sufficient positive evidence emerge to support the realization of deferred tax assets, all or a portion of the valuation allowance may be reversed.

 

Principally, due to accelerated tax depreciation in prior years, which allowed for the depreciation of assets acquired in a business acquisition, and the operating results in the current year, the losses for tax purposes resulted in a total estimated net operating federal loss carryforward of approximately $3.3 million at year-end 2024 and $1.9 million on December 31, 2023. These carryforwards are available for future utilization subject to taxable income limitations and under Internal Revenue Code Section 382 due to ownership changes. The Company has various state net operating loss carryforwards of $3.1 million, a portion of which will expire after 15 years beginning in 2037 and a portion of which has indefinite life subject to limitation consistent with federal tax rules.

The deferred tax assets are recognized for temporary deductible differences, operating loss, and tax credit carryforwards, and deferred tax liabilities are recognized for temporary taxable differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The tax effect of the temporary differences and carryforwards are as follows for the respective fiscal years:

 

 

 

2024

 

 

2023

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryforward

 

$813,000

 

 

$421,000

 

Stock-based compensation

 

 

127,000

 

 

 

78,000

 

Future tax benefit of impairment allowances

 

 

144,000

 

 

 

49,000

 

Accrued compensation

 

 

-

 

 

 

22,000

 

Unrealized gain on short-term investments

 

 

-

 

 

 

2,000

 

Total deferred tax assets

 

 

1,084,000

 

 

 

572,000

 

Less: valuation allowance

 

 

(616,000 )

 

 

-

 

Total deferred tax assets, net

 

 

468,000

 

 

 

572,000

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Property and equipment tax depreciation difference

 

 

(430,000 )

 

 

(349,000 )

Unrealized loss (gain) on short-term investments

 

 

(21,000 )

 

 

-

 

Goodwill

 

 

(17,000 )

 

 

(17,000 )

Total deferred tax liabilities

 

 

468,000

 

 

 

366,000

 

Net deferred tax asset

 

$-

 

 

$206,000

 

 

The following table summarizes the components of the provision for income taxes:

 

 

 

2024

 

 

 2023

 

Current income tax expense (benefit)

 

$-

 

 

$-

 

Deferred income taxes (benefit)

 

 

(410,000 )

 

 

(145,000 )

Change in valuation allowance

 

 

616,000

 

 

 

-

 

Total income tax expense (benefit)

 

$206,000

 

 

$(145,000 )

 

Total income tax expense for the years ended December 29, 2024, and December 31, 2023, differed from the amounts computed by applying the U.S. Federal statutory tax rate of 21% to pre-tax income as follows: 

 

 

 

2024

 

 

2023

 

Total (benefit) computed by applying the statutory federal rate

 

$(442,000 )

 

$(216,000 )

State income tax (benefit), net of federal tax benefit

 

 

(63,000 )

 

 

(36,000 )

Equity in loss of unconsolidated subsidiary

 

 

87,000

 

 

 

85,000

 

Other

 

 

8,000

 

 

 

22,000

 

Change in valuation allowance

 

 

616,000

 

 

 

-

 

Income tax expense (benefit)

 

$206,000

 

 

$(145,000 )

 

Accounting Standards require that deferred tax assets and liabilities, along with any related valuation allowance, be classified as a noncurrent item on the balance sheet.

 

The Company had no accrued interest or penalties relating to income tax obligations and currently has no federal or state examinations in progress, nor has it had any federal or state tax examinations since its inception. The last three years are subject to federal and state tax examinations. With few exceptions, the Company is no longer subject to U.S. Federal and state income tax examinations by tax authorities for years before 2021.