5. Income Taxes

The income tax provision consists of the following:

	2015		2014		2013
Current –
Federal	$	(214,297)	$	155,602	$	1,499,400
State		(55,258)		(127,329)		77,344
		(269,555)		28,273		1,576,744
Deferred –
Federal		544,492		1,363,093		406,116
State		(439,325)		35,618		10,568
		105,167		1,398,711		416,684
Income Tax Provision	$	(164,388)	$	1,426,984	$	1,993,428

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

	2015			2014			2013
Federal statutory rate		34.0	%		34.0	%		34.0	%
State income taxes, net of federal benefit		-22.0	%		1.1	%		1.1	%
Permanent differences		1.3	%		-2.7	%		0.6	%
Stock based compensation		3.9	%		0.0	%		0.0	%
Federal R&D Credits		-29.4	%		-1.6	%		-1.3	%
Effective tax rate		-12.2	%		30.8	%		34.4	%

The Company’s -12.2% effective income tax rate is primarily due to Federal and California research and development (R&D) tax credits. The total benefit recognized from R&D tax credits was $710 thousand in 2015, $208 thousand in 2014 and $75 thousand in 2013, respectively. As of December 31, 2015, there were $95 thousand of Federal tax credit carryforwards from 2015 which have a 20 year carryforward period. As of December 31, 2015, there were $463 thousand of California tax credit carryforwards relating to 2012 to 2015 which have an unlimited carryforward period.

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

	2015		2014
Deferred tax assets:
Stock-based compensation	$	127,754	$	168,926
Allowance for doubtful accounts		20,599		33,585
Accrued expenses		115,221		89,212
R&D tax credits		407,705		84,806
	$	671,279	$	376,529

Deferred tax liabilities:
Prepaid expenses		(57,697)		(44,565)
Excess of tax over book depreciation and amortization		(3,138,885)		(2,752,101)
		(3,196,582)		(2,796,666)
Net deferred tax liabilities	$	(2,525,303)	$	(2,420,137)

These amounts are shown net on the balance sheets as follows:

	2015		2014
Deferred tax asset short-term	$	327,442	$	376,529
Deferred tax liability long-term		(2,852,745)		(2,796,666)
Net deferred tax liabilities	$	(2,525,303)	$	(2,420,137)

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, 2015 and 2014. The tax years ended December 31, 2012 through December 31, 2015 remain subject to examination by all major taxing authorities.