NOTE 12 - INCOME TAXES

The Company's income tax expense (benefit) for the years ended December 31, 2023 and 2022 consists of the following components:

		2023			2022
Current
Federal	$	678,000		$	3,037,973
State		66,889			182,000
Deferred		744,889			3,219,973

Federal		(168,700	)		(177,100	)

Income tax expense	$	576,189		$	3,042,873

The Company's effective income tax expense differs from the federal statutory amount because of the effect of the following items:

	2023	2022
Federal tax statutory rate	21.00%	21.00%
State tax statutory rate	2.25%	1.20%
Effect of prior year (over) under provision	8.00%	-1.20%
Timing and permanent differences	10.00%	2.40%
Valuation Allowance	0.00%	0.00%
	41.25%	23.40%

Deferred income taxes (benefit) 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, and the tax effects of net operating losses that are available to offset future taxable income.

Significant components of the Company's deferred tax assets (liabilities) at December 31, 2023 and 2022 consist of the following:

		2023			2022
Deferred tax assets:
Accounts receivable	$	172,400		$	185,900
Inventory		58,500			52,600
Payroll differences		25,700			(31,900	)
Net operating loss carryforwards		819,000			1,023,000
Less valuation allowance		(819,000	)		(1,023,000	)
Deferred tax assets, net	$	256,600		$	206,600

Deferred tax liabilities:
Depreciation		(172,400	)		(272,800	)
Deferred tax assets (liabilities), net	$	84,200		$	(66,200	)

In assessing the ultimate realization of deferred tax assets and liabilities, management considers whether it is more likely than not that some or all of them will not be realized. The Company

established a valuation allowance for the use of its state tax net operating loss carry forwards due to uncertain state tax profitability in the jurisdictions within which the losses were incurred.

Changes in the tax system by certain states has prevented the Company from utilizing any portion of its state tax net operating loss carry forwards in 2023, and for tax years 2024 and 2025. While the future level of profitability is uncertain, due in part to the uncertain economic climate and its impact on our future levels of profitability, the change in the location of the USA warehouse in 2022 will impact the utilization of the state tax net operating loss carry forwards. As of both December 31, 2023, and 2022, the Company has approximately $11,700,000 of net operating loss carry forwards to offset certain future state taxable income, expiring in 2029.

The Company files a consolidated federal and separate company state income tax returns in the United States. As of December 31, 2023, the tax years that remain subject to examination are 2020 to 2023 for federal and state tax purposes.

The Company has reviewed its open tax positions and determined that no exposures exist that require an adjustment as of December 31, 2023 or 2022. While the Company believes that it has performed adequate procedures to identify all reasonably identifiable exposures, it is possible that exposures exist and that these exposures will need to be assessed and may potentially have a material impact on the Company's consolidated financial statements.