8. Income Taxes

On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). The TJCA made broad changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) eliminating the corporate alternative minimum tax; (3) creating a new limitation on deductible interest expense; (4) creating the base erosion and anti-abuse tax, a new minimum tax; (5) limitation on the deductibility of certain executive compensation; (6) enhancing the option to claim accelerated depreciation deductions on qualified property, and (7) changing the rules related to uses and limitations of NOLs in tax years beginning after December 31, 2017.

Income tax benefit:

	Fiscal Year Ended
	March 31,			March 31,
	2020			2019
Current:
Federal	$	-		$	-
State and local		-			-

Total current tax provision		-			-

Deferred:
Federal		-			-
State and local		(409	)		-
Release of valuation allowance		(2,648,871	)		-

Total deferred tax benefit		(2,649,280	)		-

Total benefit	$	(2,649,280	)	$	-0-

The approximate values of the components of the Company’s deferred taxes at March 31, 2020 and 2019 are as follows:

	March 31,			March 31,
	2020			2019
Deferred tax assets (liabilities):
Net operating loss carryforwards	$	845,898		$	1,345,245
Tax credits		329,032			329,032
Charitable contributions		126			116
Legal damages		1,194,268			1,117,904
Allowance for doubtful accounts		1,575			1,576
Reserve for inventory obsolescence		115,517			104,626
Inventory capitalization		48,750			70,633
Vacation accrual		76,879			68,416
Warranty reserve		24,938			24,794
Deferred revenues		99,197			76,009
Stock options		15,683			15,687
AMT credit		64,766			63,500
Depreciation		(3,849	)		5,070
Deferred tax asset		2,812,780			3,222,608
Less valuation allowance		(100,000	)		(3,159,108	)

Deferred tax asset, net	$	2,712,780		$	63,500

The recognized deferred tax asset is based upon the expected utilization of its benefit from future taxable income. The Company has federal net operating loss (“NOL”) carryforwards of approximately $4,028,000 as of March 31, 2020. These carryforward losses are available to offset future taxable income, and begin to expire in the year 2027. New Jersey State NOL carryforwards approximate $2,735,000 as of March 31, 2020. New Jersey State NOL carryforwards expire in 20 years, and certain of these amounts begin to expire in 2030.

The foregoing amounts are management’s estimates, and the actual results could differ from those estimates. Future profitability in this competitive industry depends on continually obtaining and fulfilling new profitable sales agreements and modifying products. The inability to obtain new profitable contracts or the failure of the Company’s engineering development efforts could reduce estimates of future profitability, which could affect the Company’s ability to realize the deferred tax assets.

A reconciliation of the income tax (benefit) provision at the statutory Federal tax rate of 21% for the years ended March 31, 2020 and 2019, respectively, to the income tax (benefit) provision recognized in the financial statements is as follows:

	March 31,			March 31,
	2020			2019

Income tax provision – statutory rate	$	438,314		$	42,638
Income tax expenses – state and local, net of federal benefit		67			1,027
Permanent items		5,865			32,031
Change in value of warrants – permanent difference		15,330			9,135
True-up of prior year’s deferred taxes		(36,164	)		15,386
Valuation allowance		(3,059,107	)		(118,625	)
Rate changes		-			3,102
Other		(13,585	)		15,306
Income tax provision (benefit)	$	(2,649,280	)	$	-0-