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

Annual report pursuant to Section 13 and 15(d)

16. Income Taxes

16. Income Taxes

12 Months Ended

Dec. 29, 2018

Note 16: Income taxes

For fiscal year 2018, we recorded an income tax benefit of $727. For fiscal year 2017, we recorded an income tax benefit of $3,441. As of December 29, 2017, we maintained a valuation allowance of $407 against our net operating loss carryforwards, foreign tax credits and all deferred tax assets in Canada, principally net operating losses.

The benefit of income taxes for fiscal years 2018 and 2017 consisted of the following:

	For the fiscal years ended
	December 29, 2018			December 30, 2017
Current tax expense (benefit):
Federal	$	8		$	–
State		511			34
Foreign		–			–
Current tax expense (benefit)	$	519		$	34
Deferred tax expense - domestic		(1,246	)		(3,475	)
Deferred tax expense - foreign		–			–
Benefit of income taxes	$	(727	)	$	(3,441	)

A reconciliation of our benefit of income taxes with the federal statutory tax rate for fiscal years 2018 and 2017 is shown below:

	For the fiscal years ended
	December 29, 2018			December 30, 2017
Income tax expense at statutory rate	$	(1,155	)	$	(995	)
Portion attributable to noncontrolling interest at statutory rate		–			–
State tax expense, net of federal tax effect		771			(141	)
Permanent differences		28			55
Change in tax rates		–			(3,107	)
Change in valuation allowance		(694	)		590
Other		323			157
	$	(727	)	$	(3,441	)

Loss before benefit of income taxes and noncontrolling interest was derived from the following sources for fiscal years 2018 and 2017 as shown below:

	For the fiscal years ended
	December 29, 2018			December 30, 2017
United States	$	(5,500	)	$	(2,835	)
Canada		(835	)		(90	)
	$	(6,335	)	$	(2,925	)

The components of net deferred tax assets (liabilities) as of December 29, 2018 and December 30, 2017, are as follows:

	December 29, 2018			December 30, 2017
Current deferred tax assets (liabilities):
Allowance for bad debts	$	7		$	16
Accrued expenses		998			1,107
Inventory		–			80
Accrued compensation		39			23
Reserves		–			4
Prepaid expenses		(147	)		(125	)
		897			1,105
Less: valuation allowance		–			–
Total current deferred tax assets (liabilities)		897			1,105

Long term deferred tax assets (liabilities):
Net operating loss		292			1,217
Capital loss		–			–
Tax credits		256			473
Share-based compensation		271			302
Intangibles		(5,068	)		(6,615	)
Property and equipment		(103	)		(72	)
Deferred rent		12			16
Unrealized losses (gains)		129			132
Section 481(a) adjustment		–			(44	)
Section 163(j) interest		172			11
		(4,039	)		(4,580	)
Less: valuation allowance		(407	)		(1,102	)
Total long term deferred tax assets (liabilities)		(4,446	)		(5,682	)
Net deferred tax assets (liabilities)	$	(3,549	)	$	(4,577	)

The deferred tax amounts have been classified in the accompanying consolidated balance sheets as follows:

	December 29, 2018		December 30, 2017

Non-current assets	$	–	$	–
Non-current liabilities		3,549		4,577
	$	3,549	$	4,577

As of December 29, 2018, the Company has net operating loss carryforwards of approximately $1.2 million for federal income tax purposes, which will be available to offset future taxable income. Due to recent tax legislation, these net operating losses are eligible for indefinite carryforward, limited by certain taxable income limitations. The Company has certain foreign tax credits available but has recorded a full valuation allowance against these tax credits until the Company has sufficient foreign source income to utilize these credits. The Company continues to have a full valuation allowance against its Canadian operations. The Company released approximately $0.7 of valuation allowance related to state net operating losses due to sufficient income in those jurisdictions or otherwise expired.

The Company annually conducts an analysis of its uncertain tax positions and has concluded that it has no uncertain tax positions as of December 29, 2018. The Company’s policy is to record uncertain tax positions as a component of income tax expense. The Company was selected for examination by the IRS for its 2016 tax year. As of March 29, 2019, the IRS has not proposed any adjustments, and the Company is not aware of any adjustments.

Due to recent tax legislation that occurred on December 22, 2017 the federal corporate income tax rate was reduced to a flat 21%, which provides a significant income tax benefit to our Company in future reporting periods. The Company recognized a tax benefit of approximately $3.1 million related to adjusting our deferred tax balances to reflect the new corporate tax rate.