Income Taxes

The following table sets forth income before taxes and the income tax (benefit) expense (in thousands):



	Year Ended December 31,
	2018		2017
Current:
Federal	$	—	$	—
State	13		—
	13		—
Deferred:
Federal	—		(212		)
State	—		(18		)
	—		(230		)
Income tax expense (benefit)	$	13	$	(230	)

Our effective tax rate differs from the statutory federal tax rate as shown in the following table (in thousands):



	Year Ended December 31,
	2018			2017
U.S. federal income taxes at the statutory rate	$	(1,503	)	$	1,945
State taxes, net of federal effects	(69		)	146
Other permanent differences	38			(244		)
Equity-based compensation	84			—
Transaction costs	93			—
Goodwill impairment	840			—
Rate change	550			1,725
Change in valuation allowance	(20		)	(3,802		)
Income tax expense (benefit)	$	13		$	(230	)

The tax effect of the temporary differences that give rise to significant portions of the deferred tax assets and liabilities is presented below (in thousands):



	December 31,
	2018			2017
Deferred tax assets:
Tax benefit of operating loss carry forward	$	8,088		$	7,942
Reserves and allowances	2			1
Accrued expenses	57			73
Charitable contributions	8			134
Stock-based compensation	701			802
Fixed assets	(37		)	—
Goodwill	292			144
Intangible amortization	50			61
Texas margin tax temporary credit	209			233
Total deferred tax assets	9,370			9,390
Valuation allowance	(9,370		)	(9,390		)
Net deferred tax assets	$	—		$	—

The ending balances of the deferred tax asset have been fully reserved, reflecting the uncertainties as to realizability evidenced by the Company’s historical results. The change in valuation allowance for the year ended December 31, 2018 is a decrease of $20,000.

We and our subsidiary file federal and state tax returns on a consolidated basis. During 2013, we determined that an “ownership change” had occurred in 2013 (as defined under Section 382 of the Internal Revenue Code of 1986, as amended) which places an annual limitation on the utilization of the net operating loss (“NOL”) carryforwards accumulated before the ownership change. As a result of this annual limitation and the limited carryforward life of the accumulated NOLs, we determined that the ownership change resulted in the permanent loss of $1,900,000 of tax benefit associated with the NOL carryforwards. If additional ownership changes occur in the future, the use of the NOL carryforwards could be subject to further limitation. At December 31, 2018, we had federal NOL carryforwards of $34,788,000 available to offset future federal taxable income which expire in various amounts beginning in 2019. Federal NOLs generated beginning in 2018 do not expire. The Company also has various state NOL carryforwards. The determination of the state NOL carryforwards is dependent upon apportionment percentages and state laws that can change from year to year and impact the amount of such carryforwards.

A formal Section 382 study is expected to be completed following the closing of the proposed Merger, however, the Merger of Glowpoint and SharedLabs is likely to result in another ownership change which is expected to result in a significant annual limitation of Glowpoint’s NOL carryforwards, thereby reducing the ability to utilize such NOL carryforwards.

There were no significant matters determined to be unrecognized tax benefits taken or expected to be taken in a tax return, in accordance with ASC Topic 740 “Income Taxes” (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements, that have been recorded on the Company’s consolidated financial statements for the years ended December 31, 2018 and 2017. The Company does not anticipate a material change to unrecognized tax benefits in the next twelve months.

Additionally, ASC 740 provides guidance on the recognition of interest and penalties related to income taxes. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the years ended December 31, 2018 and 2017.

The federal and state tax returns for the years ending December 31, 2015 and thereafter are currently open and