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Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Year Ended December 31		2019				2018
Current taxes - Federal		$	-			$	177,000
Current taxes - State			38,000				48,000
Deferred taxes - Federal			(437,000	)			227,000
Deferred taxes - State			(67,000	)			32,000

Income tax expense (benefit)		$	(466,000	)		$	484,000

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% as follows:

Year Ended December 31		2019				2018
Federal statutory rate			21.0	%			21.0	%

Stock-based awards			(0.8	)			0.6
State taxes			3.2				2.8
Other permanent differences			(0.1	)			0.7
Impact of uncertain tax positions			(0.6	)			1.7
Valuation allowance			(14.0	)			(1.6	)
Other			(0.2	)			0.5

Effective federal income tax rate			8.5	%			25.7	%

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

As of December 31		2019				2018
Deferred tax assets
Accrued expenses		$	105,000			$	129,000
Inventory reserve			5,000				3,000
Stock-based awards			88,000				78,000
Reserve for bad debts			16,000				5,000
Net operating loss and credit carryforwards			715,000				39,000
Other			26,000				23,000
Valuation allowance			(848,000	)			(79,000	)

Total deferred tax assets		$	107,000			$	198,000

Deferred tax liabilities
Depreciation		$	(18,000	)		$	(635,000	)
Prepaid expenses			(89,000	)			(67,000	)

Total deferred tax liabilities			(107,000	)			(702,000	)

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

As of December 31, 2019, the Company had a Federal net operating loss (NOL) to carry forward of approximately $2,764,000 and state NOLs of $2,076,000 to carry forward. The Federal NOLs can be carried forward indefinitely. The expiration of state NOLs carried forward varies by taxing jurisdiction. Future utilization of NOLs carried forward may be subject to certain limitations under Section 382 of the Internal Revenue Code.

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 consideration the Company’s recent performance. The change in the valuation allowance for the years ended December 31, 2019 and 2018 was $769,000 and ($29,000), respectively.

The Company has recorded a liability of $643,000 and $613,000 for uncertain tax positions taken in tax returns in previous years as of December 31, 2019 and 2018, 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 2016 and forward are open for examination and assessment by the Internal Revenue Service. With limited exceptions, tax years prior to 2016 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, 2020.

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

Balance at January 1, 2018		$	581,000
Increases due to interest and state tax			32,000
Balance at December 31, 2018			613,000
Increases due to interest and state tax			30,000
Balance at December 31, 2019		$	643,000