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9) Income Taxes

12 Months Ended

Dec. 31, 2017

Notes

9) Income Taxes

9) Income Taxes

The Company’s income tax liability (benefit) is summarized as follows:

	December 31
	2017		2016
Current	$ (922,754)		$ (1,511,762)
Deferred	18,255,537		25,830,631
Total	$ 17,332,783		$ 24,318,869

Significant components of the Company’s deferred tax (assets) and liabilities are approximately as follows:

	December 31
	2017		2016
Assets
Future policy benefits	$ (6,803,339)		$ (9,719,058)
Loan loss reserve	(697,779)		(288,590)
Unearned premium	(886,706)		(1,519,722)
Available for sale securities	(237,677)		(51,266)
Net operating loss	(631,892)		(1,531,160)
Deferred compensation	(1,600,401)		(2,225,208)
Deposit obligations	(627,193)		(1,033,580)
Other	(276,127)		(3,384,144)
Less: Valuation allowance	-		431,802
Total deferred tax assets	(11,761,114)		(19,320,926)

Liabilities
Deferred policy acquisition costs	13,700,093		18,150,517
Basis difference in property and equipment	6,110,374		10,749,036
Value of business acquired	1,383,639		2,573,902
Deferred gains	6,978,067		9,290,123
Trusts	1,066,438		1,599,657
Tax on unrealized appreciation	778,040		2,788,322
Total deferred tax liabilities	30,016,651		45,151,557
Net deferred tax liability	$ 18,255,537		$ 25,830,631

The valuation allowance relates to differences between recorded deferred tax assets and liabilities and ultimate anticipated realization. For the year ended December 31, 2017, the Company has not recorded a valuation allowance and, given additional operating results of First Guaranty Insurance Company (“First Guaranty”) that was acquired in July 2016, the Company has determined that the $431,802 valuation allowance previously recorded in 2016 related to First Guaranty is no longer needed.

The Company paid $581,556 and $2,667,918 in income taxes for the years ended December 31, 2017 and 2016, respectively.

The Company’s income tax expense (benefit) is summarized as follows for the years ended December 31:

		2017		2016
Current
Federal		$ 934,647		$ 1,138,196
State		236,559		245,764
		1,171,206		1,383,960

Deferred
Federal		(7,811,030)		5,686,651
State		59,002		443,993
		(7,752,028)		6,130,644

Total		$ (6,580,822)		$ 7,514,604

The reconciliation of income tax expense (benefit) at the U.S. federal statutory rates is as follows:

		2017		2016
Computed expense at statutory rate		$ 2,560,918		$ 6,699,099
State tax expense, net of federal tax benefit		195,070		455,240
Change in valuation allowance		(431,802)		431,802
Change in tax law		(8,973,722)		-
Other, net		68,714		(71,537)
Income tax expense (benefit)		$ (6,580,822)		$ 7,514,604

The Company’s overall effective tax rate for the years ended December 31, 2017 and 2016 was (87.4%) and 38.1%, respectively. During the fourth quarter of 2017, the Company recorded a tax benefit of $8,973,722 related to the enactment of the Tax Cuts and Jobs Act (“the Tax Act”) signed into law December 22, 2017. The benefit is primarily related to a re-measurement of deferred tax assets and liabilities taking the Tax Act’s newly enacted tax rate into account. The Company’s overall effective tax rate for the year ended December 31, 2017 without the impact of the Tax Act would be 31.8%. The Company’s effective tax rates differ from the U.S. federal statutory rate of 34% largely due to the Tax Act change, its provision for state income taxes and a reduction in the valuation allowance related to the prior acquisition of First Guaranty that decreased the effective income tax rate when compared to the prior year.

At December 31, 2017, the Company had no significant unrecognized tax benefits. As of December 31, 2017, the Company does not expect any material changes to the estimated amount of unrecognized tax benefits in the next twelve months. Federal and state income tax returns for 2014 through 2017 are subject to examination by taxing authorities.

Net Operating Losses and Tax Credit Carryforwards:

Year of Expiration
2019	$ 229,201
2020	114,601
2021	17,101
2022	-
2023	-
Thereafter up through 2037	2,323,615

	$ 2,684,518