3 - Income Taxes

12 Months Ended

Dec. 31, 2017

Notes

3 - Income Taxes

3-Income Taxes—The provision for income tax expense consists of the following:

	2017	2016
Current:
Federal…………………………..	$  647,000	$  1,005,000
State………………………………	31,000	52,000
Deferred……………………………	(291,000)	134,000
	$  387,000	$  1,191,000

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act includes significant changes to the taxation of corporations, including a reduction in the top corporate tax rate from 35% to 21%, effective January 1, 2018.  Due to the enactment of the new tax law, we re-measured our deferred tax assets and liabilities using the rate at which we expect them to be recovered or settled. As a result, the Company recognized a $432,000 tax benefit for the year ended December 31, 2017 that is reflected in the 2017 income tax expense.

The following is a reconciliation of the statutory federal income tax rate to the actual effective tax rate:

	2017		2016
	Amount	%	Amount	%
Expected tax at U.S. statutory rate…………	$  838,000	34. 0	$  1,206,000	34.0
Impact of the Act……………………………..	(432,000)	(17.5)	0	0
Permanent differences………………………	(39,000)	(1.6)	(49,000)	(1.4)
State taxes, net of federal benefit………….	20,000	0.8	34,000	1.0
Income tax expense…………………………	$  387,000	15.7	$    1,191,000	33.6

The Company’s effective tax rate was lower than the U.S. federal statutory rate in 2017 primarily due to the impact of the new tax law.  The Company’s effective tax rate was lower than the U.S. federal statutory rate in 2016 primarily due to the Domestic Production Activities Deduction allowed under Internal Revenue Code Section 199.

The deferred tax assets (liabilities) consist of the following:

	2017	2016
Depreciation and amortization………………………………..	$ (988,334)	$ (1,432,275)
Inventory………………………………………………………..	149,460	240,647
Accrued vacation………………………………………………	70,973	110,246
Allowance for doubtful accounts……………………………..	31,500	53,625
Other, net……………………………………………………….	(683)	(327)
	$  (737,084)	$  (1,028,084)

Valuation allowances related to deferred taxes are recorded based on the “more likely than not” realization criteria.  The Company reviews the need for a valuation allowance on a quarterly basis for each of its tax jurisdictions.  A deferred tax valuation allowance was not required at December 31, 2017 or 2016.