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Income Taxes

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

Income tax benefit consists of the following:

Year Ended December 31		2017				2016
Current taxes - Federal		$	(316,000	)		$	(729,000	)
Current taxes - State			6,000				(50,000	)
Deferred taxes - Federal			(23,000	)			1,000
Deferred taxes - State			63,000				(36,000	)
Income tax benefit		$	(270,000	)		$	(814,000	)

The actual tax benefit attributable to income before taxes differs from the expected tax benefit computed by applying the U.S. federal corporate income tax rate of 34% as follows:

Year Ended December 31		2017				2016
Federal statutory rate			34.0	%			34.0	%
Stock-based awards			(7.0	)			2.1
State taxes			1.5				6.3
Other permanent differences			(1.8	)			(0.8	)
Impact of uncertain tax positions			(3.0	)			(1.2	)
Valuation allowance			(8.5	)			(1.5	)
Tax rate change			14.7				-
Other			(0.2	)			(0.1	)
Effective federal income tax rate			29.7	%			38.8	%

Components of resulting noncurrent deferred tax assets (liabilities) are as follows:

As of December 31		2017				2016
Deferred tax assets
Accrued expenses		$	183,000			$	171,000
Inventory reserve			42,000				65,000
Stock-based awards			52,000				53,000
Reserve for bad debts			50,000				51,000
Net operating loss and credit carryforwards			61,000				26,000
Other			25,000				38,000
Valuation allowance			(108,000	)			(31,000	)
Total deferred tax assets		$	305,000			$	373,000

Deferred tax liabilities
Depreciation		$	(465,000	)		$	(400,000	)
Prepaid expenses			(85,000	)			(175,000	)
Prepaid compensation			-				(3,000	)
Total deferred tax liabilities			(550,000	)			(578,000	)

Net deferred income tax liabilities		$	(245,000	)		$	(205,000	)

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 change in the valuation allowance for the years ended December 31, 2017 and 2016 was $77,000 and $31,000, respectively. The valuation allowance as of December 31, 2017 and 2016 was the result of certain capital losses and at December 31, 2017 includes state income tax credits and state net operating losses carried forward which the Company does not believe are more likely than not to be realized.

The Company has recorded a liability of $581,000 and $554,000 for uncertain tax positions taken in tax returns in previous years as of December 31, 2017 and 2016, 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 2013 and forward are open for examination and assessment by the Internal Revenue Service. With limited exceptions, tax years prior to 2013 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, 2018.

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

Balance at January 1, 2016		$	528,000
Decreases due to current year positions			(2,000	)
Increases due to interest			28,000
Balance at December 31, 2016			554,000
Increases due to interest			27,000
Balance at December 31, 2017		$	581,000