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3 - Income Taxes

12 Months Ended

Dec. 31, 2016

3-Income Taxes-The provision for income tax expense consists of the following:

	2016	2015
Current:
Federal…………………………..	$ 1,005,000	$ 576,000
State………………………………	52,000	35,000
Deferred……………………………	134,000	233,000
	$ 1,191,000	$ 844,000

The following is a reconciliation of the statutory federal income tax rate to the actual effective tax rate:

	2016		2015
	Amount	%	Amount	%
Expected tax at U.S. statutory rate…………	$ 1,206,000	34. 0	$ 861,000	34.0
Permanent differences………………………	(49,000)	(1.4)	(40,000)	(1.6)
State taxes, net of federal benefit………….	34,000	1.0	23,000	0.9
Income tax expense…………………………	$ 1,191,000	33.6	$ 844,000	33.3

The Company’s effective tax rates were lower than the U.S. federal statutory rate in 2016 and 2015 primarily due to the Domestic Production Activities Deduction allowed under Internal Revenue Code Section 199.

The deferred tax liabilities and assets consist of the following:

	2016	2015

Depreciation and amortization………………………………..	$ (1,432,275)	$ (1,319,275)
Inventory………………………………………………………..	240,647	263,723
Accrued vacation………………………………………………	110,246	109,193
Allowance for doubtful accounts……………………………..	53,625	53,625
Other, net……………………………………………………….	(327)	(1,350)
	$ (1,028,084)	$ (894,084)

Valuation allowances related to deferred taxes are recorded based on the “more likely than not” realization criteria. The Company reviews the need for a valuation allowance on a quarterly basis for each of its tax jurisdictions. A deferred tax valuation allowance was not required at December 31, 2016 or 2015.