NOTE 11 - INCOME TAXES

The Company files separate tax returns in the United States and in Macau. The Macau Subsidiary has received approval from the Macau government to operate its business as a Macau Offshore Company (MOC), and is exempt from the Macau income tax. For the fiscal years ended March 31, 2015, 2014, and 2013, the Macau Subsidiary recorded no tax provision.

Due to the change of control of the Company, the net operating loss carry over is subject to the IRS Section 382 limitation. As of March 31, 2015, 2014 and 2013, The Singing Machine had net deferred tax assets before valuation allowances of approximately $3.0 million, $3.2 million, and $3.2 million, respectively, against which the Company recorded valuation allowances totaling approximately $.0.7 million, $.0.8 million, and $1.6 million, respectively.

The income tax provision (benefit) for federal, foreign, and state income taxes in the consolidated statements of income consisted of the following components for 2015, 2014 and 2013:

		2015		2014		2013
Income tax provision:
Current:
Federal	$	-	$	-	$	-
State		-		-		-

Total current Federal and State	$	-	$	-	$	-

Deferred:
Federal	$	80,836	$	(675,447)	$	(1,412,535)
State		11,865		(103,350)		(206,924)

Total income tax provision (benefit)	$	92,701	$	(778,797)	$	(1,619,459)

The United States and foreign components of income (loss) before income taxes are as follows:

	2015		2014		2013

United States	$	161,255	$	(62,095)	$	92,122
Foreign		101,604		287,614		1,429,354
	$	262,859	$	225,519	$	1,521,476

The actual tax expense differs from the "expected" tax expense for the years ended March 31, 2015, 2014 and 2013 (computed by applying the U.S. Federal Corporate tax rate of 34 percent to income before taxes) as follows:

	2015		2014		2013

Expected tax expense	$	89,372	$	76,676	$	517,302
State income taxes, net of Federal income tax benefit		(97)		7,815		25,236
Permanent differences		7,507		8,374		5,421
Deemed Dividend		37,563		108,864		537,866
Change in valuation allowance		(91,034)		(820,040)		(2,246,235)
Tax rate differential on foreign earnings		(39,272)		(111,164)		(537,866)
Prior year adjustments		88,662		(49,322)		78,817
Actual tax provision (benefit)	$	92,701	$	(778,797)	$	(1,619,459)

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows:

	2015		2014		2013
Deferred tax assets:
Federal net operating loss carryforward	$	2,041,207	$	2,076,141	$	2,189,622
State net operating loss carryforward		318,830		413,401		413,849
AMT credit carryforward		52,004		36,808		36,808
Inventory differences		431,744		490,716		358,130
Allowance for doubtful accounts		67,305		66,658		67,849
Reserve for sales returns		76,482		90,895		81,082
Stock option compensation expense		74,716		59,713		-
Stock warrants		39,194		39,193		-
Accrued Vacation		9,183		10,241		9,839
Depreciation and amortization		-		-		81,739
Total deferred tax assets		3,110,665		3,283,766		3,238,918
Deferred tax liability:
Depreciation		(96,725)		(86,091)		-
Net deferred tax assets before valuation allowance		3,013,940		3,197,675		3,238,918
Valuation allowance		(708,385)		(799,419)		(1,619,459)
Net deferred tax assets	$	2,305,555	$	2,398,256	$	1,619,459

Due to economic conditions prior to the fiscal year ended March 31, 2013, the Company believed that it was more likely than not that the benefit from the net deferred tax assets would not be realized, and established a valuation allowance on the deferred tax assets for the entire balance.

During the fiscal year ended March 31, 2015 there was a reduction in the gross deferred tax assets of approximately $91,000 due to the expiration of a California net operating loss carry-forward which was charged against the valuation reserve. During the fiscal year ended March 31, 2014 and March 31, 2013, the Company released a portion of the valuation allowance. The release of the valuation allowance was determined in accordance with the provisions of ASC 740, which require an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. The analysis performed to assess the realizability of the deferred tax assets included an evaluation of the pattern and timing of the reversals of temporary differences and the length of carryback and carry forward periods available under the applicable federal and state laws; and the amount and timing of future taxable income. The analysis indicated that it is more likely than not that approximately 77% of the deferred tax asset recorded will be realized. As a result, approximately $0, $0.8 million and $1.6 million of the valuation allowance were released during the fiscal years ended March 31, 2015, 2014 and 2013, respectively. The Company recognized a tax provision of approximately $0.1 million for the fiscal year ended March 31, 2015 and a tax benefit of approximately $0.8 million and $1.6 million for the fiscal years ended March 31, 2014 and March 31, 2013, respectively.

At March 31, 2015, the Company has federal tax net operating loss carry forwards in the amount of approximately $6.0 million that will expire beginning in the year 2027. In addition, the Company has state tax net operating loss carry forwards in the amount of approximately $6.9 million that will expire beginning in fiscal 2025. The Company has now exhausted its ability to carry back any further losses and therefore will only be able to recognize tax benefits to the extent that it has future taxable income. Net operating loss carry forward amounts and their year of expiration are as follows:

Fiscal Year of	NOL		NOL
Expiration	Federal		State

2016	$	-	$	-
2017		-		-
2018		-		-
2019		-		-
2020		-		-
2021 and beyond		6,003,550		6,853,392

	$	6,003,550	$	6,853,392

The Company is no longer subject to income tax examinations for fiscal years before 2012.