3 - Income Taxes

12 Months Ended

Dec. 31, 2018

Notes

3 - Income Taxes

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

	2018	2017
Current:
Federal…………………………..	$     351,000	$      647,000
State………………………………	20,000	31,000
Deferred……………………………	184,000	(291,000)
	$     555,000	$      387,000

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:

	2018		2017
	Amount	%	Amount	%
Expected tax at U.S. statutory rate…………	$     537,000	21.0	$     838,000	34.0
Impact of the Act……………………………..	0	0	(432,000)	(17.5)
Permanent differences………………………	2,000	0.1	(39,000)	(1.6)
State taxes, net of federal benefit………….	16,000	0.6	20,000	0.8
Income tax expense…………………………	$     555,000	21.7	$    387,000	15.7

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 deferred tax assets (liabilities) consist of the following:

	2018	2017
Depreciation and amortization	$  (1,190,597)	$ (988,334)
Inventory	164,220	149,460
Accrued vacation	74,177	70,973
Allowance for doubtful accounts	31,500	31,500
Other, net	(384)	(683)
	$     (921,084)	$ (737,084)

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, 2018 or 2017.