6. Income Taxes. Income tax expense (benefit) consists of the following:

Year Ended December 31	2013		2012
Current taxes - Federal	$	816,000	$	(772,000	)
Current taxes - State	52,000		47,000
Deferred taxes - Federal	139,000		101,000
Deferred taxes - State	39,000		(9,000		)

Income tax expense (benefit)	$	1,046,000	$	(633,000	)

Significant components of the deferred taxes are as follows:

As of December 31	2013			2012
Current Deferred Tax Assets:
Accrued compensation	$	—		$	304,000
Accrued expenses	134,000			142,000
Net operating loss carryforwards	16,000			8,000
Inventory reserve	14,000			10,000
Other	7,000			14,000

Current deferred tax assets	$	171,000		$	478,000
Long-Term Deferred Tax Assets (Liabilities):
Depreciation	$	(372,000	)	$	(513,000	)
Stock options	68,000			46,000
Net operating loss carryforwards	20,000			54,000

Long-term deferred tax liabilities	$	(284,000	)	$	(413,000	)

The Company evaluates all significant available positive and negative evidence, including the existence of losses in prior years and its forecast of future taxable income, in assessing the need for a valuation allowance. The underlying assumptions the Company uses in forecasting future taxable income require significant judgment and take into account the Company’s recent performance.

The actual tax expense (benefit) attributable to income from continuing operations differs from the expected tax expense (benefit) computed by applying the U.S. federal corporate income tax rate of 34% to the net income (loss) as follows:

Year Ended December 31	2013		2012
Federal statutory rate	34.0	%	(35.0	)%

Stock options	4.9		4.6
State taxes	1.6		0.1
Other permanent differences	0.7		1.1
Impact of uncertain tax positions	1.2		0.9
Other	0.7		0.2

Effective federal income tax rate	43.1	%	(28.1	)%

The Company has recorded a liability of $458,000 and $430,000 for uncertain tax positions taken in tax returns in previous years as of December 31, 2013 and 2012, respectively. This liability is reflected as Accrued Income Taxes on the Company’s Balance Sheets. The Company files income tax returns in the United States and numerous state and local tax jurisdictions. Tax years 2010 and forward are open for examination and assessment by the Internal Revenue Service. With limited exceptions, tax years prior to 2010 are no longer open in major state and local tax jurisdictions. The Company does not anticipate that the total unrecognized tax benefits will change significantly prior to December 31, 2014.

A reconciliation of the beginning and ending amount of the liability for uncertain tax positions is as follows:

Balance at January 1, 2012	$	424,000
Reduction as a result of filing state tax returns	(13,000		)
Increases due to interest	19,000
Balance at December 31, 2012	430,000
Resolution of prior year items	(3,000		)
Increases due to current year positions	10,000
Increases due to interest	21,000
Balance at December 31, 2013	$	458,000