Income taxes

Our provisions for income taxes for the six months ended December 31, 2011 and 2010, respectively, were as follows (using our blended effective Federal and State income tax rate of 40.3%):


	2011		2010

Current Tax Provision:
Federal and state
Taxable income	$	-	$	-
Total current tax provision	$	-	$	-

Deferred Tax Provision:
Federal and state
Net loss carryforwards	$	(1,000,000)	$	(100,000)
Change in valuation allowance		1,000,000		100,000
Total deferred tax provision	$	-	$	-

We had deferred income tax assets as of December 31, 2011 as follows:


Loss carryforwards	$	2,400,000
Less - valuation allowance		(2,400,000)
Total net deferred tax assets	$	-

As of December 31, 2011, we had net operating loss carryforwards for income tax reporting purposes of approximately $6,000,000 for federal and California state income tax that may be offset against future taxable income. The net operating loss carryforwards begin to expire in 2024 but because current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs, we estimate that our reverse merger in combination with other equity transactions will cause our net operating loss carryforwards to be severely or nearly entirely eliminated. Accordingly, the potential tax benefits of the loss carryforwards for financial reporting purposes are offset entirely by a valuation allowance of an equivalent amount. The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes were as follows:


	2011	2010
Federal statutory rate	34.0%	34.0%
State tax, net of federal benefits	6.3%	6.3%
Less valuation allowance	(40.3%)	(40.3%)
Effective income tax rate	- %	- %

We performed an analysis of our previous tax filings and determined that there were no positions taken that we consider uncertain and therefore, there were no unrecognized tax benefits as of December 31, 2011. Future changes in the unrecognized tax benefit are not expected to have an impact on the effective tax rate due to the existence of the valuation allowance. We estimate that the unrecognized tax benefit will not change within the next twelve months and we will classify income tax penalties and interest, if any, as part of interest and other expenses in our statements of operations (we have incurred no interest or penalties through December 31, 2011). Our wholly owned subsidiary Sugarmade-CA has a tax year-end ending December 31^st. We have open tax years for federal and state income tax returns from 2008 through 2011. Due to our significant net operating loss carryforwards, even if certain of our tax positions were disallowed, we do not believe we will be liable for the payment of taxes in the near future. Consequently, we did not calculate the impact of interest or penalties on amounts that might be disallowed.