5. Income Taxes

The income tax provision consists of the following:

	2014		2013		2012
Current –
Federal	$	155,602	$	1,499,400	$	1,196,926
State		(127,329)		77,344		323,302
		28,273		1,576,744		1,520,228
Deferred –
Federal		1,363,093		406,116		346,974
State		35,618		10,568		90,746
		1,398,711		416,684		437,720
Income Tax Provision	$	1,426,984	$	1,993,428	$	1,957,948

A reconciliation of the effective rate with the federal statutory rate is as follows:

	2014			2013			2012
Federal statutory rate		34.0	%		34.0	%		34.0	%
State income taxes, net of federal benefit		1.1	%		1.1	%		5.5	%
Permanent differences		-4.3	%		-0.7	%		0.1	%
Stock based compensation		0.0	%		0.0	%		0.0	%
Effective tax rate		30.8	%		34.4	%		39.6	%

The permanent difference is primarily from research and development (R&D) tax credits from Federal and California. These R&D tax credits consist of $74 thousand from Federal for 2014, $35 thousand from California for 2014, and $99 thousand from California from prior years. There are no tax credit carryforwards.

The components of the net deferred tax assets included in the accompanying balance sheets are as follows at December 31:

	2014		2013
Deferred tax assets:
Stock-based compensation	$	168,926	$	160,850
Allowance for doubtful accounts		33,585		48,578
Accrued expenses		89,212		83,367
R&D tax credits		84,806		—
	$	376,529	$	292,795

Deferred tax liabilities:
Prepaid expenses		(44,565)		—
Excess of tax over book depreciation and amortization		(2,752,101)		(1,314,221)
		(2,796,666)		(1,314,221)
Net deferred tax liabilities	$	(2,420,137)	$	(1,021,426)

The change in deferred tax liabilities was driven by bonus depreciation on new assets purchased as part of the tax extender bill passed in December 2014.

These amounts are shown on the balance sheets as follows:

	2014		2013
Deferred tax asset short-term	$	376,529	$	292,795
Deferred tax liability long-term		(2,796,666)		(1,314,221)
Net deferred tax liabilities	$	(2,420,137)	$	(1,021,426)

ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions (tax contingencies). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on an audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company’s tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes.

The Company operates within multiple taxing jurisdictions and could be subject to audit in these jurisdictions. These audits may involve complex issues, which may require an extended period of time to resolve. The Company has provided for its estimated taxes payable in the accompanying financial statements. Interest and penalties related to income tax matters are recognized as a general and administrative expense. The Company did not have any unrecognized tax benefits and did not have any interest or penalties accrued as of December 31, 2014 and 2013. The tax years ended December 31, 2011 through December 31, 2014 remain subject to examination by all major taxing authorities.