Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

Income Taxes

12. Income Taxes

A summary of the income tax expense in the Consolidated Statements of Operations is shown below.

	Years Ended December 31,
	2019		2018		2017
Current Income Taxes:
Federal	$	19,280	$	26,548	$	22,198
State		43		108		30
		19,323		26,656		22,228
Deferred Income Taxes:
Federal		4,757		(5,600)		2,085
State		—		—		—
		4,757		(5,600)		2,085
Total income tax expense	$	24,080	$	21,056	$	24,313

The income tax expense attributable to the consolidated results of operations is different from the amounts determined by multiplying income before federal income taxes by the statutory federal income tax rate. The sources of the difference and the tax effects of each were as follows for the periods indicated.

	Years Ended December 31,
	2019		2018		2017
Federal income tax expense at statutory rate	$	25,973	$	21,893	$	30,345
Tax‑exempt investment income, net		(1,626)		(1,862)		(4,123)
State taxes, net		34		85		19
Nondeductible expenses		488		494		237
Remeasurement of deferred tax liability upon enactment of the TCJA		—		—		(1,540)
Tax windfall related to share-based stock compensation		(1,003)		(79)		(333)
Other, net		214		525		(292)
Total income tax expense	$	24,080	$	21,056	$	24,313

The deferred income tax (liability) asset represents the tax effects of temporary differences attributable to the Company’s consolidated federal tax return group. Its components were as shown in the following table for the periods indicated.

	Years Ended December 31,
	2019		2018
Deferred tax assets:
Discounting of loss reserves	$	5,642	$	5,688
Discounting of unearned premium reserve		17,710		17,475
Investments		—		1,972
Bad debt allowance		274		274
Employee benefits		4,340		4,159
Rent incentive		1,063		1,181
Total deferred tax assets before valuation allowance		29,029		30,749
Valuation allowance for deferred tax assets		—		—
Total deferred tax assets		29,029		30,749
Deferred tax liabilities:
Deferred acquisition costs		(15,600)		(15,405)
Investments		(1,744)		—
Net unrealized gains on investments		(11,985)		(1,645)
Loss reserve transition adjustment		(1,662)		(2,229)
Software development costs		(2,109)		(1,268)
Premium acquisition expenses		(509)		(512)
Depreciation		(1,137)		(941)
Total deferred tax liabilities		(34,746)		(22,000)
Net deferred tax (liability) asset	$	(5,717)	$	8,749

The Company believes that the positions taken on its income tax returns for open tax years will be sustained upon examination by the Internal Revenue Service (“IRS”).  Therefore, the Company has not recorded any liability for uncertain tax positions under ASC 740, Income Taxes.

During the years ended December 31, 2019 and December 31, 2018 there were no material changes to the amount of the Company’s unrecognized tax benefits or to any assumptions regarding the amount of its ASC 740 liability.

As of December 31, 2019 and December 31, 2018, the Company had no unrecognized tax benefits, and none which if recognized would affect the effective tax rate. The Company does not currently anticipate significant changes in the amount of unrecognized income tax benefits during the next twelve months.

The Company records interest and penalties associated with audits as a component of income before income taxes. Penalties are recorded in underwriting, operating and other expenses, and interest expense is recorded in interest expenses in the Consolidated Statements of Operations. The Company had no interest and penalties related to income taxes accrued as of December 31, 2019 and 2018.

In the Company’s opinion, adequate tax liabilities have been established for all open years. However, the amount of these tax liabilities could be revised in the near term if estimates of the Company’s ultimate liability are revised. All tax years prior to 2016 are closed.

On December 22, 2017, the TCJA was enacted, which significantly amended the Internal Revenue Code of 1986. The TCJA, among other things, reduced the corporate tax rate from a statutory rate of 35% to 21%, imposed additional limitations on net operating losses and executive compensation, allowed for the full expensing of certain capital expenditures and enacted other changes impacting the insurance industry.