NOTE 11 - INCOME TAXES

The Company’s 2013 consolidated effective tax rate was 39.33% as compared to (4.72%) in 2012. The large increase in the effective tax rate is due to the Company benefiting from the release of the valuation allowance in 2012, previously recorded against the deferred tax asset for goodwill amortization.

In prior years, the Company recorded and maintained a valuation allowance against the deferred tax asset resulting from the amortization of goodwill. Changes in the valuation allowance and the corresponding impact on the effective income tax rate resulted from Management’s assessment of the Company’s ability to utilize the tax deduction from goodwill amortization. The decrease in valuation allowance in 2012 was $402,617. Based upon the Company’s history of earnings and expected sufficient earnings in future periods, Management has determined that it is more likely than not that the Company will realize a tax benefit when the deferred tax asset attributable to goodwill reverses. Therefore, no valuation allowance has been recorded as of December 28, 2013 and December 31, 2012.

The Company and its subsidiaries file income tax returns for U.S. Federal and Alabama purposes. The Company is not currently under a tax examination, but the statute of limitations has not yet expired. The Company generally remains subject to examination of its U.S. federal income tax returns for 2010 and subsequent years as the IRS has a three year window to assess/collect taxes. In addition, the Company also remains subject to examination of its Alabama income tax returns for 2010 and subsequent years. However, if required income taxes are understated by more than 25%, the statute of limitations is extended to 6 years, potentially opening the years of 2007 through 2009 as well.

The income tax provision (benefit) consists of the following:

Income Taxes:

The components of the provision for income taxes are as follows:


	2013		2012

Current income taxes	$	196,466	$	108,772
Deferred income taxes		332,080		(146,728	)

(Benefit)/Provision for income taxes	$	528,546	$	(37,956	)

The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes are as follows:


	2013						2012
	Amount			Impact on Rate			Amount			Impact on Rate
Income tax at federal rate	$	456,885			34.00	%	$	272,394			34.00	%
State tax, net of Federal effect		56,788			4.23	%		33,857			4.23	%
Permanent Differences:

Meals & Entertainment		20,792			1.55	%		19,207			2.40	%
Officers Life Insurance		1,337			0.10	%		1,337			0.17	%
Derivative expense		—			0.00	%		(13,175	)		-1.64	%
Charitable Contribution C/F		(646	)		-0.05	%		—			0.00	%
Domestic Production Activities Deduction		(25,954	)		-1.94	%		—			0.00	%

Total Permanent Differences		(4,471	)		-0.34	%		7,369			0.93	%


Deferred Tax Valuation Allowance		—			0.00	%		(402,617	)		-50.25	%
True Up to Tax Return - Deferred Assets		—			0.00	%		51,041			6.37	%
NOL Deduction		(27,192	)		-2.02	%		—			0.00	%
Total Tax Credits		(20,068	)		-1.49	%		—			0.00	%
Prior Period over/under accrual		66,612			4.95	%		—			0.00	%
Rounding		(8	)		0.00	%		—			0.00	%

Total (Benefit) Provision	$	528,546			39.33	%	$	(37,956	)		-4.72	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred income taxes are as follows:


	2013			2012

Current Deferred Tax Assets:
Warranty Reserve	$	452,978		$	447,243
Repurchase Reserve		58,298			40,627
Allowance for Loan Losses		77,201			125,955
Allowance for Doubtful Accounts		5,734			5,734
Inventory Reserve		5,531			5,708
Accrued Legal Fees		3,823			3,823

Total Current Deferred Tax Asset		603,565			629,090


Non-Current Deferred Tax Assets:
Goodwill Impairment		1,706,420			1,950,130
Valuation Allowance		—			—

Total Non-Current Deferred Tax Assets		1,706,420			1,950,130


Current Deferred Tax Liabilities:
Prepaid insurance		(35,872	)		—

Total Current Deferred Tax Liabilities		(35,872	)		—


Non-Current Deferred Tax Liability:
Accelerated Depreciation		(93,709	)		(65,799	)
Sale of Assets		8,468			7,530

Total Non-Current Deferred Tax Liability		(85,241	)		(58,269	)


Total Deferred Tax Assets (Net)	$	2,188,872		$	2,520,951