INCOME TAXES

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

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

	2020			2019
U.S.	$	(2,537,388	)	$	277,014
Foreign		427,042			2,793
	$	(2,110,346	)	$	279,807

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:

	2020			2019
Current:
Federal	$	-		$	-
State		500			456
Foreign		250,711			62,135
Total current		251,211			62,591
Deferred:
Federal		-			-
State		-			-
Foreign		(129,004	)		(64,795	)
Total deferred		(129,004	)		(64,795	)
Income tax provision (benefit)	$	122,207		$	(2,204	)

A reconciliation of income taxes computed by applying the statutory U.S. income tax rate to the Company’s income (loss) before income tax provision (benefit) to the income tax provision (benefit) is as follows for the years ended December 31:

	2020			2019
U.S. federal statutory tax rate		21.00	%		21.00	%
State tax benefit, net		7.52	%		7.62	%
Stock compensation		(5.16	)%		8.79	%
Attributes expiration		(38.04	)%		114.46	%
Other		(0.85	)%		1.82	%
Valuation allowance		9.75	%		(154.66	)%
Effective income tax rate		(5.78	)%		(0.97	)%

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:

	2020			2019
Deferred taxes:
NOLs	$	9,456,605		$	10,155,715
Inventory and other reserves		24,128			-
Stock based compensation expense		853,239			380,544
Lease liability		25,151			32,576
Accruals		1,892			-
Other		96			96
Total deferred tax assets		10,361,111			10,568,931
Depreciation and amortization		(908,380	)		(1,012,528	)
Right-of-use assets		(24,767	)		(31,929	)
Valuation allowance		(10,388,911	)		(10,594,663	)
Net deferred tax liabilities	$	(960,947	)	$	(1,070,189	)

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 reduction in the valuation allowance is approximately $206,000 and $432,000 in 2020 and 2019, respectively.

As of December 31, 2020, the Company had net operating loss carryforwards for federal income tax purposes of approximately $41,093,000. Of the total amount approximately $494,000 were generated after January 1, 2018, and therefore will not expire but can only be used to offset 80 percent of future taxable income. The remaining amount of approximately $40,599,000 expire beginning in the year 2021. As of December 31, 2020, the Company had net operating loss carryforwards for state income tax purposes of approximately $12,559,000 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 limitation provided by the Internal Revenue Code and similar state provisions. Such annual limitations 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, 2020 and 2019.

The income tax provision at December 31, 2020 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, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2017. 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 March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Due to the Company's history of net operating losses, the CARES Act is not expected to have a material impact on the Company's financial statements.

On December 27, 2020, the United States enacted the Consolidated Appropriations Act of 2021 (“CAA”). The CAA includes provisions extending certain CARES Act provisions and adds coronavirus relief, tax and health extenders. The Company will continue to evaluate the impact of the CAA and its impact on our financial statements in 2021 and beyond.