NOTE L — INCOME TAXES

Due to Milestone Scientific's history of operating losses, a full valuation allowances have been provided for all of Milestone Scientific's deferred tax assets. At

December 31, 2019

and

2018,

recognition was given to the utilization of the remaining net operating loss carry forwards in each of these periods.

Deferred tax attributes resulting from differences between financial accounting amounts and tax bases of assets and liabilities at

December 31, 2019

and

2018

are as follows:

	2019			2018

Allowance for doubtful accounts	$	2,000		$	3,000
Warranty reserve		5,000			29,000
Impaired Assets		-			435,000
Inventory Reserve		178,000			551,000
Deferred officers' compensation		820,000			715,000
Depreciation and Amortization		(103,000	)		345,000
Net operating loss carryforward		16,504,000			16,500,000
Tax Credit		384,000			-
Other		(28,000	)		-
Subtotal		17,762,000			18,578,000
Valuation allowance		(17,762,000	)		(18,578,000	)
Non-current deferred tax asset	$	-		$	-

As of

December 31, 2019,

federal net operating loss carry-forwards are approximately

$59,000,000.

As of

December 31, 2018,

Milestone Scientific has federal net operating loss carry-forwards of approximately

$65,300,000,

which is comprised solely of losses attributable Milestone Scientific and its subsidiaries. Net operating losses generated before

December 31, 2017

will be available to offset future income, if any, through

December 2037.

Net operating losses generated in

2018

or after can be carried forward indefinitely. As of

December 31, 2019,

state net operating losses were approximately

56,700,000.

As of

December 31, 2019

and

2018,

Milestone, Scientific has state net operating loss carry-forwards of approximately

$39,400,000

and

$30,800,000,

respectively. Net operating losses will be available to offset future taxable income, if any, through

December 2039.

The utilization of Milestone Scientific's net operating losses

may

be subject to a substantial limitation due to the "change of ownership provisions" under Section

382

of the Internal Revenue Code and similar state provisions. Such limitation

may

result in the expiration of the net operating loss carry forwards before their utilization. Milestone Scientific has established a

100%

valuation allowance for all its deferred tax assets due to uncertainty as to their future realization.

As of

December 31, 2019,

and

2018,

state tax liability was approximately

$18,000

and

$24,000

respectively. Such expense was recognized in the accompanying consolidated financial statements.

Accounting for uncertainties in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, disclosure and transition. At

December 31, 2019

and

2018,

we had

uncertain tax positions that required recognition in the consolidated financial statements. Milestone Scientific's policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Statements of Operations.

interest and penalties are present for periods open. Tax returns for the

2016,

2017,

and

2018

years are subject to audit by federal and state jurisdictions.

A reconciliation of the statutory tax rates for the years ended

December 31,

is as follows:

	2019			2018
Statutory rate		21	%		21	%
State income tax-all states		4	%		7	%
Change in fair value of derivative		-11	%		0	%
NOL Expiration		-22	%		0	%
Other		-3	%		0	%
Subtotal		-11	%		28	%
Valuation allowance		11	%		-28	%
Effective tax rate		0	%		0	%