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Income Taxes
 6 Months Ended
Jun. 30, 2022
Income Taxes  
Income Taxes

4. Income Taxes. For the three and six months ended June 30, 2022, the Company recorded income tax expense of $14,000 and $22,000, respectively, or 1.3% and 2.2% of loss before taxes, respectively. For the three and six months ended June 30, 2021, the Company recorded income tax expense of $10,000 and $23,000, respectively, or 1.1% and 1.4% of loss before taxes, respectively. The income tax expense for the three and six months ended June 30, 2022 and 2021 is comprised of federal and state taxes. The primary differences between the Company’s June 30, 2022 and 2021 effective tax rates and the statutory federal rate are nondeductible stock-based compensation, nondeductible meals and entertainment, nondeductible penalties and increases in the Company’s valuation allowance against its deferred tax assets; and for the period ended June 30, 2021, loan forgiveness from the Paycheck Protection Program (PPP) loan.

 

The Company reassesses its effective rate each reporting period and adjusts the annual effective rate if deemed necessary, based on projected annual taxable income (loss).

 

Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of enacted tax laws. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which it operates, estimates of future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustment to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria.

 

As of June 30, 2022, and December 31, 2021, the Company had unrecognized tax benefits totaling $730,000 and $711,000, respectively, including interest, which relates to state nexus issues. The amount of the unrecognized tax benefits, if recognized, that would affect the effective income tax rates of future periods is $730,000. Due to the current statute of limitations regarding the unrecognized tax benefits, the Company expects to record a decrease of approximately $695,000 in unrecognized tax benefits related to state exposures in the third quarter of 2022, which will reduce accrued income taxes and increase income tax benefit.