Ideal Power Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2016

Income taxes are disproportionate to income due to net operating loss carryforwards, which are fully reserved. As of December 31, 2016, the Company has federal net operating loss carryforwards of approximately $33 million which will begin to expire in 2031. Management has concluded that it is more likely than not that the Company will not have sufficient foreseeable taxable income within the carryforward period permitted by current law to allow for the utilization of certain of the deductible amounts generating the deferred tax assets; therefore, a full valuation allowance has been established to reduce the net deferred tax assets to zero at December 31, 2016 and 2015.

The following is a summary of the significant components of the Company’s net deferred income tax assets and liabilities as of December 31, 2016 and 2015:



	For the Year Ended December 31,
	2016			2015
Current deferred income tax assets:
Inventory – uniform capitalization	$	104,000		$	75,000
Accrued compensation and other	136,000			199,000
Less: valuation allowance	(240,000		)	(274,000		)
	$	—		$	—
Non-current deferred income tax assets and (liabilities):
Net operating loss	$	11,319,000		$	8,029,000
Research and development credit	18,000			18,000
Warranty reserve	114,000			122,000
Warrants issued for services	73,000			73,000
Depreciation and amortization	17,000			(12,000		)
Exercise of options and warrants	(50,000		)	(46,000		)
Stock based compensation	830,000			511,000
Intangibles	(666,000		)	(548,000		)
Less: valuation allowance	(11,655,000		)	(8,147,000		)
Net non-current deferred tax assets	$	—		$	—

The Company has applied the provisions of FASB ASC 740, Income Tax, which clarifies the accounting for uncertainty in tax positions. FASB ASC 740 requires the recognition of the impact of a tax position in the financial statements if that position is more likely than not of being sustained on a tax return upon examination by the relevant taxing authority, based on the technical merits of the position. At December 31, 2016 and 2015, the Company had no unrecognized tax benefits.

The Company recognizes interest and penalties related to income tax matters in interest expense and operating expenses, respectively. As of December 31, 2016 and 2015, the Company has no accrued interest and penalties related to uncertain tax positions.

The Company is subject to tax in the United States (“U.S.”) and files tax returns in the U.S. federal and certain state jurisdictions. The Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2012. The Company currently is not under examination by any tax authority.

The reconciliation between the statutory income tax rate and the effective tax rate is as follows:



	For the Year Ended December 31,
	2016		2015
Statutory federal income tax rate	(34	)%	(34	)%
Stock based compensation	2		(1	)
Other	—		2
Valuation allowance	32		33
	—	%	—	%