|12 Months Ended|
Dec. 31, 2017
|Notes to Financial Statements|
|Note 9 - Income Taxes||
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the consolidated financial statements and the tax basis of assets and liabilities by using estimated tax rates for the year in which the differences are expected to reverse.
The Company recognizes deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If we determine that the Company would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
In assessing the realizability of its deferred tax assets, management evaluated whether it is more likely than not that some portion, or all of its deferred tax assets, will be realized. The realization of its deferred tax assets relates directly to the Companys ability to generate taxable income. The valuation allowance is then adjusted accordingly.
The Company has estimated net operating losses of approximately $11,500,000 and $8,600,000 as of December 31, 2017, and 2016 respectively. The potential benefit of these net operating losses has not been recognized in these financial statements because the Company cannot be assured it is more likely than not that it will utilize the net operating losses carried forward in future years. The net operating loss carryforwards will expire in 2027 through 2037.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the Tax Act) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. We have calculated our best estimate of the impact of the Tax Act in our year end deferred tax calculations in accordance with our understanding of the Tax Act and guidance available as of the date of this filing. The amount related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future, was an adjustment of $563,846.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a companys accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.
In connection with our initial analysis of the impact of the Tax Act, we have recorded an adjustment of $563,846 for the revaluation of our net deferred tax liability for the year ended December 31, 2017.
The income tax benefit (provision) consists of the following for the years ending December 31, 2017 and 2016:
As of December 31, 2017, the Company had net operating loss carry forwards of approximately $11,500,000. The federal net operating loss carry forwards will not expire as a result of the Tax Act legislation, and state net operating loss carry forwards that will expire in 2026 through 2037.
The components of deferred tax assets and liabilities as of December 31, 2017, and 2016 is as follows:
A reconciliation of the federal and state statutory income tax rates to the Companys effective income tax rate applicable to income before income tax benefit from continuing operations is as follows for the years ended December 31, 2017 and 2016:
The Company files income tax returns on a consolidated basis in the United States federal jurisdiction. As of December 31, 2017, the tax returns for the Company for the years ending 2013 through 2016 remain open to examination by the Internal Revenue Service. The Company and its subsidiaries are not currently under examination for any period.
Should the Company undergo an ownership change as defined in Section 382 of the Internal Revenue Code, the Companys tax net operating loss carry forwards generated prior to the ownership change will be subject to an annual limitation, which could reduce or defer the utilization of these losses.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef