NOTE 9. INCOME TAXES
We have not made provision for income taxes for the years ended December 31, 2019 or 2018, since we have net operating loss carryforwards generated from recurring net losses offset by a full valuation allowance as described below.
On December 22, 2017, the Tax Reform Act was signed into law. The legislation significantly changes U.S. tax law by, among other things, lowering the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. As a result of the decrease in the corporate income tax rate, we revalued our ending net deferred tax assets at December 31, 2019, but did not recognize any incremental income tax expense in 2018 due to the revaluation of the valuation allowance.
Deferred tax assets consist of the following at December 31:
| |
|
2019
|
|
|
2018
|
|
| |
|
|
|
|
|
|
|
|
|
Benefit from net operating loss carryforwards
|
|
$ |
2,388,540 |
|
|
$ |
2,101,778 |
|
| |
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
113,101 |
|
|
|
129,150 |
|
| |
|
|
|
|
|
|
|
|
|
Less: valuation allowance
|
|
|
(2,501,641 |
)
|
|
|
(2,230,928 |
)
|
| |
|
|
|
|
|
|
|
|
| |
|
$ |
- |
|
|
$ |
- |
|
Due to uncertainties surrounding our ability to generate future taxable income to realize these assets, a full valuation has been established to offset the net deferred income tax asset. Based on management’s assessment, utilizing an effective combined tax rate for federal and state taxes of approximately 21%, we have determined that it is not currently more likely than not that we will realize our deferred income tax assets of approximately $2,502,000 and $2,231,000 attributable predominantly to the future utilization of the approximate $11,374,000 and $9,762,000 in eligible net operating loss carryforwards, and the allowance for doubtful accounts, as of December 31, 2019 and 2018, respectively. We will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carryforwards will begin to expire in varying amounts from year 2020 to 2038, with those net operating losses generated during the year ended December 31, 2019 set to never expire based on the provisions of the Tax Reform Act.
Current income tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, amounts available to offset future taxable income may be limited under Section 382 of the Internal Revenue Code.
Following is a reconciliation of the (provision) benefit for federal income taxes as reported in the accompanying consolidated statements of operations, to the expected amount at the 21% federal statutory rate:
For the years ended December 31, 2019 and 2018, the reasons for the difference between the statutory federal rate of 21% and the effective tax rate were as follows:
| |
|
2019
|
|
|
2018
|
|
| |
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
Percentage
|
|
| |
|
|
|
|
|
of Pre-Tax
|
|
|
|
|
|
|
of Pre-Tax
|
|
| |
|
Amount
|
|
|
Income
|
|
|
Amount
|
|
|
Income
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit for income tax
at federal statutory rate
|
|
$ |
338,639 |
|
|
|
21.0 |
%
|
|
$ |
141,047 |
|
|
|
21.0 |
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit for state
income tax, net of federal effect
|
|
|
38,218 |
|
|
|
2.4 |
%
|
|
|
15,918 |
|
|
|
2.4 |
%
|
|
Non-deductible expenses
|
|
|
- |
|
|
|
- |
%
|
|
|
- |
|
|
|
- |
%
|
|
Effect of change in enacted tax rate
|
|
|
- |
|
|
|
- |
%
|
|
|
- |
|
|
|
- |
%
|
|
Change in available NOLs
|
|
|
(97,775 |
)
|
|
|
(6.1 |
%)
|
|
|
(44,222 |
)
|
|
|
(6.6 |
%)
|
|
Change in valuation allowance
|
|
|
(270,713 |
)
|
|
|
(16.8 |
%)
|
|
|
(112,743 |
)
|
|
|
(16.8 |
%)
|
|
Other
|
|
|
(8,369 |
)
|
|
|
(0.5 |
%)
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
- |
|
|
|
- |
%
|
|
$ |
- |
|
|
|
- |
%
|
