10.

TAXATION

Under current Bermuda law, the Company and its subsidiaries are

not

required to pay taxes in Bermuda on either income or capital gains. The Company has received an undertaking from the Bermuda government that, in the event of income or capital gains taxes being imposed, the Company will be exempted from such taxes until the year

2035.

However, Protexure which is a Delaware corporation domiciled in the state of Illinois is subject to taxation in the United States.

Estimates of future taxable income, including income generated from prudent and feasible actions and tax planning strategies could change in the near term, perhaps materially, which

may

require us to consider any potential impact to our assessment of the recoverability of the deferred tax asset. Such potential impact could be material to our consolidated financial condition or results of operations for an individual reporting period.

The actual income tax rate differed from the amount computed by applying the effective rate of

under Bermuda law to earnings before income taxes as shown in the following reconciliation:

	2019		2018
Earnings before income tax	$	2,626,796	$	—
Expected tax		—		—
Foreign taxes at local expected rates		48,277		29,000
Change in deferred tax asset of US subsidiary		166,000		—
Deferred tax expense from enacted rate reductions		—		—
Change in valuation allowance		—		(2,730,000	)
Net tax expense (benefit)	$	214,277	$	(2,701,000	)

Deferred income taxes, arising from Protexure, reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Management has reduced deferred tax assets by a valuation allowance as the ability of the Company to realize these benefits has

not

certain at this time. The components of net deferred income tax assets and liabilities are comprised of the following:

	2019			2018
Capitalized start-up expenses	$	73,000		$	87,000
Operating loss carryforwards		1,769,000			1,800,000
Unearned commission income		74,000			91,000
Accrued interest to parent		650,000			764,000
Depreciation and amortization		(2,000	)		(12,000	)
Deferred tax assets	$	2,564,000		$	2,730,000

December

31,

2019,

the deferred tax assets are based on loss carryforwards of

$6.2

million, which expire in

years.

AMERINST INSURANCE GROUP, LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)