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Income Taxes | 12 Months Ended
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Dec. 31, 2024
Income Tax Disclosure [Abstract] |
Income Tax Disclosure | ) INCOME TAXES The Company files a consolidated federal income tax return with all subsidiaries, including our former subsidiary, UPC. The following table summarizes the provision for income taxes:
| Year Ended December 31,
| 2024 |  | 2023 |  | 2022
Federal: |  |  |  |  |
Current | $ | 17,992 |  |  | $ | 11,798 |  |  | $ | (171) |
Deferred | 401 |  |  | (2,908) |  |  | 18,823 |
Provision for Federal income tax expense | 18,393 |  |  | 8,890 |  |  | 18,652 |
State: |  |  |  |  |
Current | 4,446 |  |  | 3,128 |  |  | 1,518 |
Deferred | 957 |  |  | (2,562) |  |  | 5,315 |
Provision for State income tax expense | 5,403 |  |  | 566 |  |  | 6,833 |
Provision for income taxes | $ | 23,796 |  |  | $ | 9,456 |  |  | $ | 25,485 |
Income tax expense is included in the financial statements as follows:
| Year Ended December 31,
| 2024 |  | 2023 |  | 2022
Continuing operations | $ | 25,340 |  |  | $ | 10,876 |  |  | $ | 26,233 |
Discontinued operations | (1,544) |  |  | (1,420) |  |  | (748) |
Reported income tax provision | $ | 23,796 |  |  | $ | 9,456 |  |  | $ | 25,485 |
The actual income tax expense attributable to continuing operations differs from the expected income tax expense attributable to continuing operations computed by applying the combined applicable effective federal and state tax rates to income before the provision for income taxes as follows:
| Year Ended December 31,
| 2024 |  | 2023 |  | 2022
Expected income tax expense at federal rate | $ | 21,348 |  |  | 21.0 | % |  | $ | 20,176 |  |  | 21.0 | % |  | $ | 354 |  |  | 21.0 | %
State tax expense, net of federal deduction benefit | 5,771 |  |  | 5.7 |  |  | 2,584 |  |  | 2.7 |  |  | (217) |  |  | (12.9) |
Dividend received deduction | (30) |  |  | — |  |  | (6) |  |  | — |  |  | (24) |  |  | (1.4) |
Non-Deductible Goodwill | — |  |  | — |  |  | — |  |  | — |  |  | 715 |  |  | 42.5 |
Other permanent items | (116) |  |  | (0.1) |  |  | 50 |  |  | 0.1 |  |  | 214 |  |  | 12.7 |
Prior period accrual adjustment | (501) |  |  | (0.5) |  |  | 126 |  |  | 0.1 |  |  | 469 |  |  | 27.9 |
Outside basis in subsidiary | 8,970 |  |  | 8.8 |  |  | — |  |  | — |  |  | 189 |  |  | 11.2 |
Change in valuation allowance | (12,476) |  |  | (12.3) |  |  | (12,177) |  |  | (12.7) |  |  | 24,426 |  |  | 1,453.1 |
Change in enacted tax rate | 2,375 |  |  | 2.3 |  |  | (54) |  |  | (0.1) |  |  | 110 |  |  | 6.5 |
Other, net | (1) |  |  | — |  |  | 177 |  |  | 0.2 |  |  | (3) |  |  | (0.2) |
Reported income tax expense | $ | 25,340 |  |  | 24.9 | % |  | $ | 10,876 |  |  | 11.3 | % |  | $ | 26,233 |  |  | (1,560.6) | %
Deferred income taxes, which are included in other assets or other liabilities as appropriate, reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As of December 31, 2024, we had net operating loss (NOL) carryforwards. The amount and timing of realizing the benefits of NOL carryforwards depend on future taxable income and limitation imposed by tax laws. There is no expiration for $2,000 of our Federal NOL carryforward. The remaining $27,281,000 of our Federal NOL carryforward will begin expiring in 2041 and will fully expire by the end of 2042. There is no expiration for $2,641,000 of our Florida NOL carryforward. The remaining $43,609,000 of our Florida NOL carryforward will begin expiring in 2039 and will fully expire by the end of 2042. Our other state NOL carryforwards of $3,065,000 will begin expiring in 2043 and will fully expire by the end of 2044. The unused business tax credits of $1,610,000 will begin expiring in 2037 and will fully expire by the end of 2040. The table below summarizes the significant components of our net deferred tax asset (liability):
| December 31,
| 2024 |  | 2023
Deferred tax assets: |  |  |
Unearned premiums | $ | 6,985 |  |  | $ | 6,571 |
Unrealized loss | 3,575 |  |  | 4,875 |
Tax-related discount on loss reserve | 620 |  |  | 627 |
R&D tax credit carryforward | 1,610 |  |  | 1,610 |
Investments | 2,592 |  |  | 2,072 |
Bad debt expense | 848 |  |  | 2,729 |
Equity compensation | 797 |  |  | 582 |
Dual consolidated loss carryforward | 4,737 |  |  | 4,745 |
Net operating loss carryforward | 7,740 |  |  | 4,297 |
Outside basis in subsidiary | 32,138 |  |  | 44,802 |
Other | 1,205 |  |  | 1,427 |
Total pre-allowance deferred tax assets | 62,847 |  |  | 74,337 |
Valuation allowance | (43,212) |  |  | (56,491) |
Total deferred tax assets | 19,635 |  |  | 17,846 |
Deferred tax liabilities: |  |  |
Deferred acquisitions costs | (14,108) |  |  | (8,033) |
Intangible assets | (1,616) |  |  | (2,279) |
Prepaid expenses | (472) |  |  | (435) |
Investments | (131) |  |  | (105) |
Fixed assets | (377) |  |  | (1,698) |
Total deferred tax liabilities | (16,704) |  |  | (12,550) |
Net deferred tax asset | $ | 2,931 |  |  | $ | 5,296 |
Net deferred tax asset is included in the financial statements as follows:
| Year Ended December 31,
| 2024 |  | 2023
Continuing operations | $ | 2,931 |  |  | $ | 5,296 |
Discontinued operations | — |  |  | — |
Net deferred tax asset | $ | 2,931 |  |  | $ | 5,296 |
We had a valuation allowance of $43,212,000 and $56,491,000 at December 31, 2024 and 2023, respectively. At December 31, 2024, the entire valuation allowance is attributable to our continuing operations. The change in valuation allowance includes a $12,476,000 decrease in valuation allowance charged to continuing operations tax expense and a $804,000 decrease of valuation allowance on our FAS 115 assets which is charged to other comprehensive income. In assessing the net realizable value of deferred tax assets, we consider whether it is more likely than not that we will not realize some portion or all of the deferred tax assets. The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which those temporary differences become deductible. We considered taxable income (loss), reversals of temporary items, projected future taxable income and tax planning strategies in making this assessment. As of June 30, 2022, the Company established a valuation allowance against its capital deferred tax inventory, which included unrealized gains and losses on investments (FAS 115 balances). Under ASC 740-10-45-20, the effect of a change in the beginning-of-the-year balance of a valuation allowance should be charged to income from continuing operations. Changes in deferred tax on FAS 115 balances are generally charged to Accumulated Other Comprehensive Income (AOCI), so booking a portion of the valuation allowance to deferred tax expense creates a disproportionate tax effect in AOCI. As a result of the valuation allowance, the Company has a disproportionate tax effect in AOCI beginning with the period ending June 30, 2022. When the Company releases this disproportionate tax effect, it results in an income tax benefit in the income statement. The Company is using the “aggregate portfolio approach” to clear the disproportionate tax effect. Under this approach, the disproportionate tax effect remains intact as long as the investment portfolio remains. Only upon the disposal of the entire portfolio is the disproportionate tax effect cleared from OCI. During 2024, the disproportionate tax effects related to the portfolio of UPC (an entity no longer included in the Consolidated financial statements of the Company) were cleared from the Company’s AOCI account and charged to discontinued operations. The disproportionate tax effects attributable to the remaining investment portfolio of the Company remain intact as of December 31, 2024. The statute of limitations related to our consolidated Federal income tax returns and our Florida income tax returns expired for all years up to and including 2013; therefore, only the 2014 through 2024 tax years remain subject to examination by the taxing authorities. During the year ended December 31, 2022, we were examined by the IRS regarding tax years 2018, 2019 and 2020. This exam was completed in 2023, and no adjustments were proposed. ACIC’s reinsurance subsidiaries, which are based in the Cayman Islands and Bermuda, made an irrevocable election under section 953(d) of the U.S. Internal Revenue Code of 1986, as amended, to be treated as a domestic insurance company for U.S. Federal income tax purposes. As a result of this election, our reinsurance subsidiaries are subject to United States income tax on its worldwide income as if it were a U.S. corporation. The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits for the year ended December 31, 2024:
|  | December 31, 2024
Balance at January 1 |  | $ | 666 |
Decrease based on tax positions related to prior years |  | — |
Balance at December 31 |  | $ | 666 |
Included in the balance at December 31, 2024 was $666,000 of unrecognized tax benefits that, if recognized, would affect the annual effective tax rate. We do not anticipate a material change in the unrecognized tax benefits over the next 12 months.

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