INCOME TAXES

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

10. Income Taxes

On December 22, 2017, the President of the United States signed into law the 2017 Tax Act. The 2017 Tax Act included a number of changes to the existing U.S. tax laws that impact the Company, most notably a reduction in the U.S. corporate income tax rate from 34 percent to 21 percent for tax years beginning after December 31, 2017.

Total income taxes for the years ended December 31, 2020, 2019 and 2018 are presented in the table below.

	For the year ended December 31,
	2020		2019			2018
Income tax expense	$	1,965,679	$	2,175,274		$	1,108,982
Unrealized gains (losses) on securities available for sale presented in accumulated other comprehensive income (loss)		315,546		(600,765	)		(192,280	)
Total	$	2,281,225	$	1,574,509		$	916,702

Income tax expense was as follows:

	For the year ended December 31,
	2020		2019		2018
Current income taxes
Federal	$	1,543,334	$	1,742,430	$	1,326,619
State		—		—		—
Total current tax expense		1,543,334		1,742,430		1,326,619
Deferred income tax (benefit) expense		422,345		432,844		(217,637	)
Total income tax expense	$	1,965,679	$	2,175,274	$	1,108,982

The differences between actual income tax expense and the amounts computed by applying the U.S. federal income tax rate of 21% to pretax income from continuing operations for the periods indicated are reconciled in the table below.

	For the year ended December 31,
	2020			2019			2018
Computed “expected” tax expense	$	1,769,525		$	1,993,679		$	1,686,702
Increase (reduction) in income taxes resulting from:
Amortization of credit and gain		—			1,685			196,477
Stock based compensation		19,527			16,391			15,205
Valuation allowance		8,083			7,123			7,538
Other		7,259			6,233			38,938
State income tax, net of federal benefit		238,729			268,000			(226,578	)
Federal credits		—			—			(454,985	)
Tax exempt interest income		(77,444	)		(117,837	)		(154,315	)
	$	1,965,679		$	2,175,274		$	1,108,982

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2020 and 2019 are presented below.

	December 31, 2020			December 31, 2019
Deferred tax assets:
Allowance for loan losses	$	849,159		$	806,982
State credit carryforward		5,762			307,950
Deferred loan fees		141,993			—
Passthrough income		26,525			68,438
State net operating loss carryforward		89,997			81,914
Nonaccrual interest		30,528			41,453
Other		9,432			6,934
Total gross deferred tax assets		1,153,396			1,313,671
Valuation allowance		(89,997	)		(81,914	)
Total gross deferred tax assets, net of valuation allowance		1,063,399			1,231,757
Deferred tax liabilities:
Fixed assets, principally due to differences in depreciation		(382,668	)		(109,169	)
Unrealized (gain) loss on securities available for sale		(443,889	)		(128,344	)
Deferred loan fees		—			(32,696	)
Other		(57,918	)		(57,741	)
Prepaid expenses		(21,633	)		(225	)
		(906,108	)		(328,175	)
Net deferred tax assets	$	157,291		$	903,582

In 2018, the Company invested in a Federal Rehabilitation Credit. The tax credit was used during the year ended December 31, 2018. Amortization expense recognized for the years ended December 31, 2019 and 2018 was $8,022 and $354,888, respectively. In 2016, the Company invested in a South Carolina Rehabilitation Credit. The tax credit was included in deferred tax assets and is being amortized. Amortization expense recognized for the year ended December 31, 2018 was $306,105 and was included in other operating expense on the statement of operations.

There was a $89,997 and $81,914 valuation allowance for deferred tax assets at December 31, 2020 and 2019, respectively, associated with the Company’s state tax credits. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and prior to their expiration governed by the income tax code. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods during which the deferred income tax assets are expected to be deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowance at December 31, 2020. The amount of the deferred income tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.

The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid.

The Company has analyzed the tax positions taken or expected to be taken in its tax returns and concluded it has no liability related to uncertain tax positions in accordance with applicable regulations.

Tax returns for 2017 and subsequent years are subject to examination by taxing authorities.