Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes

Income Taxes

6. Income Taxes. Income tax expense from continuing operations consists of the following:

Year Ended December 31	2023		2022
Current taxes - Federal	$	-	$	-
Current taxes - State		20,000		6,000
Income tax expense	$	20,000	$	6,000

The actual tax (expense) benefit attributable to income (loss) from continuing operations before taxes differs from the expected tax benefit (expense) computed by applying the U.S. federal corporate income tax rate of 21% as follows:

Year Ended December 31	2023			2022
Federal statutory rate		21.0	%		21.0	%
Stock-based awards		(0.5	)		(0.7	)
State benefit		3.1			2.7
Valuation allowance		(24.6	)		(24.6	)
Other		0.3			1.3
Effective federal income tax rate		(0.7	)%		(0.3	)%

Components of resulting noncurrent deferred tax assets (liabilities) are as follows:

As of December 31	2023			2022
Deferred tax assets
Accrued expenses	$	117,000		$	231,000
Inventory reserve		-			23,000
Stock-based awards		9,000			24,000
Reserve for bad debts		2,000			26,000
Net operating loss and credit carryforwards		529,000			824,000
Other		2,000			23,000
Depreciation		-			43,000
Valuation allowance		(645,000	)		(1,175,000	)
Total deferred tax assets	$	14,000		$	19,000
Deferred tax liabilities
Depreciation	$	(5,000	)	$	-
Prepaid expenses		(9,000	)		(19,000	)
Total deferred tax liabilities		(14,000	)		(19,000	)
Net deferred income tax	$	-		$	-

As of December 31, 2023, the Company had a Federal pre-tax net operating loss (NOL) to carry forward of approximately $1,607,000 and state pre-tax NOLs of approximately $2,914,000 to carry forward. The Federal NOLs can be carried forward indefinitely. The expiration of state NOLs carried forward varies by taxing jurisdiction. Future utilization of NOLs carried forward may be subject to certain limitations under Section 382 of the Internal Revenue Code.

The Company evaluates all significant available positive and negative evidence, including the existence of losses in prior years and its forecast of future taxable income, in assessing the need for a valuation allowance. The underlying assumptions the Company uses in forecasting future taxable income require significant judgment and take into consideration the Company’s recent performance. The change in the valuation allowance for the years ended December 31, 2023 and 2022 was a decrease of $530,000 and $1,970,000, respectively. The valuation allowance decreases in 2023 and 2022 were primarily related to the utilization of the Company’s net operating losses carried forward against the Company’s taxable income. Such utilization was limited to 80% of the Company’s taxable income for the year.

The Company has recorded a liability of $42,000 and $53,000 for uncertain tax positions taken on tax returns in previous years as of December 31, 2023 and 2022, respectively. This liability is reflected as accrued income taxes on the Company’s balance sheets. The Company files income tax returns in the United States and numerous state and local tax jurisdictions. Tax years 2020 and forward are open for examination and assessment by the Internal Revenue Service. With limited exceptions, tax years prior to 2020 are no longer open in major state and local tax jurisdictions. The Company has recorded a decrease of approximately $16,000 in unrecognized tax benefits related to state exposure in the third quarter of 2023, which reduced accrued income taxes and increased the current income tax benefit. The Company determined it was no longer more likely than not that the Company would realize the tax expense.

A reconciliation of the beginning and ending amount of the liability for uncertain tax positions is as follows:

Balance at January 1, 2022	$	711,000
Decrease due to state tax expense		(678,000	)
Increases due to interest and state tax		20,000
Balance at December 31, 2022	$	53,000
Decrease due to state tax expense	$	(16,000	)
Increases due to interest and state tax		5,000
Balance at December 31, 2023	$	42,000