INCOME TAXES

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

INCOME TAXES

The Company is subject to taxation in the United States and Massachusetts. The provision for income taxes for the years ended December 31, 2016 and 2015 are summarized below:

	December 31,			December 31,
	2016			2015
Current:
Federal	$	-		$	-
State		456			975
Total current		456			975
Deferred:
Federal		-			571,125
State		(372,409	)
Change in valuation allowance		(198,716	)
Total deferred		-			-
Income tax provision (benefit)	$	456		$	975

A reconciliation of income taxes computed by applying the statutory U.S. income tax rate to the Company’s loss before income taxes to the income provision is as follows:

	December 31,			December 31,
	2016			2015
U.S. federal statutory tax rate		34.00	%		34.00	%
State tax benefit, net		5	%		(0.02	)%
Gain on stock price guarantee		-			-
Other		41.65	%		(0.02	)%
Valuation allowance		(80.94	)%		(33.99	)%
Effective income tax rate		(0.13	)%		(0.03	)%

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

	December 31,			December 31,
	2016			2015
Deferred tax assets:
NOL's	$	16,478,100		$	16,018,000
Inventory and other reserves		40,000			40,000
Depreciation and amortization		(1,438,600	)		6,000
Change in value of stock		340,700			406,900
NQ stock option expense		705,400			689,000
Other		55,000			(500	)
Total deferred tax assets		16,180,600			17,159,400
Valuation allowance		(17,441,000	)		(17,159,400	)
Net deferred tax liabilities	$	(1,260,400	)	$	-

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by approximately $(281,600) in 2016.

As of December 31, 2016, the Company had net operating loss carryforwards for federal income tax purposes of approximately $46,000,000 which expire beginning in the year 2019. As of December 31, 2015, the Company had net operating loss carryforwards for state income tax purposes of approximately $11,000,000 which expire beginning in the year 2030.

Utilization of the net operating losses may be subject to substantial annual limitation due to federal and state ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such annual limitations could result in the expiration of the net operating losses ad credits before their utilization. The Company has not performed an analysis to determine the limitation of the net operating loss carryforwards.

For income tax purposes, emergeIT has non-capital losses which can be applied to reduce future years’ taxable income totaling approximately $607,000. These losses expire between 2030 and 2036. The Company also has a Scientific Research and Experimental Development Expenditure pool balance of approximately $55,000 which may be used to reduce future year’s taxable income. The expenditure pool can be carried forward indefinitely.

A valuation allowance of 100% has been established in respect of the net deferred income tax assets due to the uncertainty of the Company’s utilization of such deferred tax assets for US Federal and State.

At December 31, 2016, both Paid, Inc. and emergeIT, Inc, have no unrecognized tax benefits as a result of tax positions taken in the current or prior years, and accordingly there are neither unrecognized tax that will change benefits or would affect the effective tax rate, nor there are any situations where it is reasonably possible that the unrecognized tax benefit significantly within twelve months of the reporting date. As of December 31, 2016, the Company has no unrecognized tax exposure.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had $0 accrued for interest and penalties on each of the Company’s consolidated balance sheets at December 31, 2016 and 2015.

The income tax provision at December 31, 2016 reflects a full accounting of tax filings under ASC Subtopic 740-10. Paid, Inc. is subject to U.S. federal and Massachusetts state tax. With limited exceptions, we are no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2012. Generally, the tax years remain open for examination by the federal authority under three-year statute of limitation; however, states generally keep their statute open for four years. In addition, the Company's tax years from inception are subject to examination by the United States and Massachusetts authorities due to the carry forward of unutilized net operating losses. emergeIT is subject to taxation in Canada and Ontario. As of December 31, 2016, the Company’s tax years for 2012 through 2016 are subject to examination by tax authorities. The Company recognizes interest and penalties, as estimated or incurred, as general and administrative expense.