Note 5. Income Taxes

Total income taxes were allocated as follows:

	2015			2014
Total tax expense on income	$	1,320		$	474

Tax expense (benefit) on components of shareholders’ equity:
Net unrealized gains (losses) on investment securities		(2,528	)		1,656
Total tax expense (benefit)	$	(1,208	)	$	2,130

A reconciliation of the differences between income taxes computed at the federal statutory income tax rate and the income tax expense is as follows:

	2015			2014
Federal income tax provision at statutory rate of 35%	$	1,998		$	1,717
Dividends-received deduction		(99	)		(115	)
Small life insurance company deduction		(582	)		(600	)
Other		42			53
Change in asset valuation allowance due to change in judgment relating to realizability of deferred tax assets		—			(651	)
Adjustment for prior years’ estimates to actual		(39	)		70
Income tax expense	$	1,320		$	474

The primary differences between the effective tax rate and the federal statutory income tax rate for 2015 resulted from the dividends-received deduction (“DRD”) and the small life insurance company deduction (“SLD”). The current estimated DRD is adjusted as underlying factors change and can vary from estimates based on, but not limited to, actual distributions from investments as well as the amount of the Company’s taxable income. The SLD varies in amount and is determined at a rate of 60 percent of the tentative life insurance company taxable income (“LICTI”). The SLD for any taxable year is reduced (but not below zero) by 15 percent of the tentative LICTI for such taxable year as it exceeds $3,000 and is ultimately phased out at $15,000.

The primary differences between the effective tax rate and the federal statutory income tax rate for 2014 resulted from the DRD, the SLD and the change in deferred tax asset valuation allowance. The change in deferred tax asset valuation allowance was due to the utilization of certain capital loss carryforward benefits that had been previously reduced to zero through an existing valuation allowance reserve. All unused capital loss carryforwards expired at the end of 2014.

Deferred tax liabilities and assets at December 31, 2015 and 2014 were comprised of the following:

	2015			2014
Deferred tax liabilities:
Deferred acquisition costs	$	(2,623	)	$	(2,832	)
Deferred and uncollected premiums		(677	)		(704	)
Net unrealized investment gains		(2,469	)		(4,997	)
Other		(642	)		(37	)
Total deferred tax liabilities		(6,411	)		(8,570	)
Deferred tax assets:
Net operating loss carryforwards		—			20
Insurance reserves		4,522			4,676
Impaired assets		1,474			1,474
Alternative minimum tax credit		504			239
Bad debts and other		740			766
Total deferred tax assets		7,240			7,175
Net deferred tax asset (liability)	$	829		$	(1,395	)

The components of income tax expense were:

	2015		2014
Current - Federal	$	1,016	$	372
Deferred - Federal		304		753
Change in deferred tax asset valuation allowance		—		(651	)
Total	$	1,320	$	474

The Company has formal tax-sharing agreements, and files a consolidated income tax return, with its subsidiaries. Tax years prior to 2012 have been audited by the Internal Revenue Service and are closed.