Income Taxes

12 Months Ended

Dec. 31, 2014

Income Taxes [Abstract]

Income Taxes

12.          Income Taxes

Loss before provision for income taxes was distributed geographically for the years ended December 31, as follows (in thousands):

	2014			2013			2012
Domestic	$	(13,993	)	$	(12,877	)	$	(10,283	)
Foreign		(228	)		(94	)		1,121
Total	$	(14,221	)	$	(12,971	)	$	(9,162	)

The provision for income taxes is as follows for the years ended December 31 (in thousands):

	2014			2013			2012
Current
Federal	$	-		$	-		$	--
State		3			2			2
Foreign		10			107			123
Change in deferred
Federal		(4,214	)		(3,794	)		(3,653	)
Federal valuation allowance		4,214			3,794			3,653
State		(460	)		129			453
State valuation allowance		460			(129	)		(453	)
Foreign		64			111			276
Foreign valuation allowance		(64	)		(111	)		(276	)
Total current	$	13		$	109		$	125

The differences between our effective income tax rate and the U.S. federal statutory federal income tax rate for the years ended December 31, are:

	2014			2013			2012
Amounts at statutory tax rates		34	%		34	%		34	%
Foreign losses taxed at different rates		(1	)%		--			1	%
Stock-based compensation		(2	)%		(3	)%		(7	)%
Other		(1	)%		(1	)%		--
Total		30	%		30	%		28	%
Valuation allowance		(31	)%		(31	)%		(29	)%
Effective tax rate		(1)	%		(1	)%		(1	)%

Significant components of the deferred tax asset balances at December 31 are as follows (in thousands):

	2014			2013
Deferred tax assets:
Accruals	$	1,053		$	1,519
Stock compensation		1,210			1,070
Net operating losses		14,681			9,760
Total deferred tax assets	$	16,944		$	12,349
Basis difference in fixed assets		2			(14	)
Valuation allowance		(16,946	)		(12,335	)
Total net deferred tax assets	$	--		$	--

Valuation allowances are recorded to offset certain deferred tax assets due to management’s uncertainty of realizing the benefits of these items. Management applies a full valuation allowance for the accumulated losses of Neonode Inc., and its subsidiaries, since it is not determinable using the “more likely than not” criteria that there will be any future benefit of our deferred tax assets. This is mainly due to our history of operating losses. As of December 31, 2014, we had federal, state and foreign net operating losses of $41.7 million, $16.1 million and $0, respectively. The federal loss carryforward begins to expire in 2028, the California loss carryforward begins to expire in 2020 and the foreign loss carryforward is indefinite.

Utilization of the net operating loss and tax credit carryforwards is subject to an annual limitation due to the ownership percentage change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions. The annual limitation may result in the expiration of the net operating losses and tax credit carryforwards before utilization. As of December 31, 2014, we had not completed the determination of the amount to be limited under the provision.

As of December 31, 2014, we did not recognize $533,000 and $27,000 of federal and state deferred tax assets relating to excess tax benefits for stock-based compensation deductions. Unrecognized deferred tax benefits will be accounted for as a credit to additional paid-in capital when realized through a reduction in income taxes payable.

We follow the provisions of accounting guidance which includes a two-step approach to recognizing, de-recognizing and measuring uncertain tax positions accounted for in accordance with accounting guidance. There were no unrecognized tax benefits for the years ended December 31, 2014, 2013 and 2012.

We follow the policy to classify accrued interest and penalties as part of the accrued tax liability in the provision for income taxes. For the years ended December 31, 2014, 2013 and 2012 we did not recognize any interest or penalties related to unrecognized tax benefits.

Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2014 and 2013, we had no accrued interest and penalties related to uncertain tax matters.

As of December 31, 2014, we had no uncertain tax positions that would be reduced as a result of a lapse of the applicable statute of limitations. 

Payments related to the license agreement with Sony Corporation are net of 10% income tax withholding as required by the Japanese government under the Sweden and Japan international tax treaty. The amounts withheld may be used to offset future payables for income tax in Sweden. In the years ended December 21, 2014, 2013 and 2012, $0, $42,000 and $123,000 was withheld, respectively.

We file income tax returns in the U.S. federal jurisdiction, California, Sweden, Japan and South Korea. The 1999 through 2013 tax years are open and may be subject to potential examination in one or more jurisdictions. We are not currently under any federal, state or foreign income tax examinations.