INCOME TAXES

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

INCOME TAXES

The Company’s loss before taxes includes the following components for the years ended December 31:

	2018	2017
U.S.	(964,658)	(348,138)
Foreign	(10,630,164)	(345,091)
	(11,594,822)	(693,229)

The Company is subject to taxation in the U.S., Canada, and Massachusetts. The provision (benefit) for income taxes for the years ended December 31 are summarized below:

	2018		2017
Current:
Federal	$	-	$	-
State		456		456
Foreign		20,107		-
Total current		20,563		456
Deferred:
Federal		-		-
State		(1)		-
Foreign		(83,858)		(76,665)
Total deferred		(83,859)		(76,665)
Income tax provision (benefit)	$	(63,296)	$	(76,209)

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 benefit is as follows for the years ended December 31:

	2018			2017
U.S. federal statutory tax rate		21.00	%		34.00	%
State tax benefit, net		0.16	%		2.61	%
Stock compensation		(3.43)	%		-	%
Other		(0.85)	%		(6.02)	%
Tax law change		-	%		(904.97)	%
Impairment of goodwill		(18.87)	%		-	%
Valuation allowance		2.57	%		885.38	%
Effective income tax rate		0.58	%		11.00	%

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 as of December 31:

	2018		2017
Deferred taxes:
NOLs	$	10,391,563	$	10,526,744
Inventory and other reserves		31,892		31,892
Depreciation and amortization		(1,024,619)		(1,341,573)
Change in value of stock		241,575		240,611
Nonqualified stock option expense		297,822		523,026
Other		96		58,896
Total deferred tax assets		9,938,329		10,039,596
Valuation allowance		(11,026,635)		(11,309,256)
Net deferred tax liabilities	$	(1,088,306)	$	(1,269,660)

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 change in the valuation allowance is approximately $283,000 in 2018.

As of December 31, 2018, 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, 2018, the Company had net operating loss carryforwards for state income tax purposes of approximately $11,000,000 which expire beginning in the year 2030. The Company’s federal net operating loss carryforwards generated after January 1, 2018 will not expire but can only be used to offset 80 percent of future taxable income. Utilization of 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 provisions. Such annual limitation could result in the expiration of the net operating losses and credits before their utilization. The Company has not performed an analysis to determine the limitation of the net operating loss carryforwards.

A valuation allowance of 100% has been established in respect of the deferred income tax assets due to the uncertainty of the Company’s utilization of such deferred tax assets for the U.S. federal and state on each of the Company’s consolidated balance sheets at December 31, 2018 and 2017.

The income tax provision at December 31, 2018 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 2015. 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 limited examination by the United States and Massachusetts authorities due to the carry forward of unutilized net operating losses. ShipTime is subject to taxation in Canada and Ontario. The Company recognizes interest and penalties, as estimated or incurred, as general and administrative expense.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“the Act”). The Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Act reduces the corporate tax rate from a maximum of 35% to a flat 21% rate. The rate reduction is effective January 1, 2018. As a result of the rate reduction, the Company reduced the deferred tax asset balance as of December 31, 2017 by $6,300,000. Due to the Company’s full valuation allowance position, the Company also reduced valuation allowance by the same amount.

In December 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the income tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting relating to the TCJA under Accounting Standards Codification Topic 740, “Income Taxes” (“ASC 740”). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for TCJA-related income tax effects is incomplete, but the company is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in its financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect before the enactment of the TCJA. The Company has completed its evaluation of the potential impacts of the TCJA on its December 31, 2018 financial statements and there is no material impact on the income tax provision due to the valuation allowance as of December 31, 2018