Note 7. Income Taxes

Total income taxes were allocated as follows:

	2018			2017
Total tax expense (benefit) on income	$	(267	)	$	828

Tax expense (benefit) on components of shareholders’ equity:
Net unrealized gains on investment securities		(2,541	)		2,111
Total tax expense (benefit)	$	(2,808	)	$	2,939

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

	2018			2017
Federal income tax provision	$	(204	)	$	1,875
Statutory rate		21	%		35	%

Dividends-received deduction		(39	)		(92	)
Small life insurance company deduction		-			(613	)
Other		75			72
Remeasurement of deferred taxes due to tax reform enactment		-			(395	)
Adjustment for prior years’ estimates to actual		(99	)		(19	)
Income tax expense (benefit)	$	(267	)	$	828
Effective tax rate		27.5	%		15.5	%

The primary differences between the effective tax rate and the federal statutory income tax rate for 2018 resulted from provision-to-filed return adjustments that are generally updated at the completion of the third quarter of each fiscal year and were $99 in the year ended December 31, 2018.

The primary differences between the effective tax rate and the federal statutory income tax rate for 2017 resulted from the DRD, the SLD, which was subsequently repealed by tax reform enacted on December 22, 2017, and the remeasurement of deferred taxes. 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. Under the then-applicable tax rules, the SLD varied in amount and was determined at a rate of 60% of the tentative LICTI. The SLD for any taxable year was reduced (but not below zero) by 15% of the tentative LICTI for such taxable year as it exceeded $3,000 and was ultimately phased out at $15,000. The remeasurement of deferred taxes resulted from legislated tax reform enacted on December 22, 2017. The tax reform reduced the federal tax rate applied to the Company’s deferred tax balances from 35% to 21% on enactment.

Deferred tax liabilities and assets at December 31, 2018 and 2017 were comprised of the following:

	2018			2017
Deferred tax assets:
Deferred acquisition costs	$	175		$	-
Insurance reserves		3,410			3,216
Impaired assets		1,142			869
Bad debts and other		332			380
Total deferred tax assets		5,059			4,465
Deferred tax liabilities:
Deferred acquisition costs	$	-		$	(1,200	)
Deferred and uncollected premiums		(360	)		(377	)
Net unrealized investment gains		(148	)		(3,150	)
Other		(367	)		(331	)
Total deferred tax liabilities		(875	)		(5,058	)
Net deferred tax asset (liability)	$	4,184		$	(593	)

The components of income tax expense (benefit) were:

	2018			2017
Current - Federal	$	1,969		$	2,186
Deferred - Federal		(2,236	)		(1,358	)
Total	$	(267	)	$	828

The Company has formal tax-sharing agreements, and files a consolidated income tax return, with its subsidiaries. Tax years prior to 2015 have been audited by the Internal Revenue Service and are closed.