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Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Income tax expense (benefit) consists of the following:

Year Ended December 31		2018				2017
Current taxes - Federal		$	177,000			$	(316,000	)
Current taxes - State			48,000				6,000
Deferred taxes - Federal			227,000				(23,000	)
Deferred taxes - State			32,000				63,000

Income tax expense (benefit)		$	484,000			$	(270,000	)

The actual tax expense (benefit) attributable to income (loss) before taxes differs from the expected tax expense (benefit) computed by applying the U.S. federal corporate income tax rate of 21% for 2018 or 34% for 2017 as follows:

Year Ended December 31		2018				2017
Federal statutory rate			21.0	%			(34.0	)%

Stock-based awards			0.6				7.0
State taxes			2.8				(1.5	)
Other permanent differences			0.7				1.8
Impact of uncertain tax positions			1.7				3.0
Valuation allowance			(1.6	)			8.5
Tax rate change			0.0				(14.7	)
Other			0.5				0.2

Effective federal income tax rate			25.7	%			(29.7	)%

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

As of December 31		2018				2017
Deferred tax assets
Accrued expenses		$	129,000			$	183,000
Inventory reserve			3,000				42,000
Stock-based awards			78,000				52,000
Reserve for bad debts			5,000				50,000
Net operating loss and credit carryforwards			39,000				61,000
Other			23,000				25,000
Valuation allowance			(79,000	)			(108,000	)

Total deferred tax assets		$	198,000			$	305,000

Deferred tax liabilities
Depreciation		$	(635,000	)		$	(465,000	)
Prepaid expenses			(67,000	)			(85,000	)

Total deferred tax liabilities			(702,000	)			(550,000	)

Net deferred income tax liabilities		$	(504,000	)		$	(245,000	)

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, 2018 and 2017 was $(29,000) and $77,000, respectively. The valuation allowance as of December 31, 2018 and 2017 was the result of certain capital losses, 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 $613,000 and $581,000 for uncertain tax positions taken in tax returns in previous years as of December 31, 2018 and 2017, 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 2015 and forward are open for examination and assessment by the Internal Revenue Service. With limited exceptions, tax years prior to 2015 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, 2019.

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

Balance at January 1, 2017		$	554,000
Increases due to interest			27,000
Balance at December 31, 2017			581,000
Increases due to interest and state tax			32,000
Balance at December 31, 2018		$	613,000