Note 8 - Income Taxes

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

8. INCOME TAXES

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are summarized as follows:

	December 31,
	2022		2021
Deferred tax assets:
Tax discounting of claim reserves	$	931,054	$	829,619
Unearned premium reserve		1,686,905		1,503,989
Net unrealized depreciation of securities		2,105,391		—
Deferred compensation		316,051		237,599
Provision for uncollectible accounts		10,500		21,000
Other		89,347		101,166
Deferred tax assets before allowance		5,139,248		2,693,373
Less valuation allowance		—		—
Total deferred tax assets	$	5,139,248	$	2,693,373
Deferred tax liabilities:
Transition Adjustment for Loss Reserve Discounting	$	113,088	$	150,784
Net unrealized appreciation of securities		—		1,938,542
Deferred policy acquisition costs		1,505,078		1,373,157
Property and equipment		143,047		100,399
Other		81,347		85,353
Total deferred tax liabilities		1,842,560		3,648,235
Net deferred tax asset (liability)	$	3,296,688	$	(954,862	)

In July 2019, the Treasury issued Rev Proc 2019-31, which included final revised loss reserve discounting factors and transitional guidance necessary to complete the accounting for the impacts of the Tax Cuts and Jobs Act. The transitional adjustment for loss reserve discounting was recalculated as of January 1, 2018 and the resulting adjustment is being recognized in taxable income evenly over an eight-year period beginning in 2018.

Management believes it is more likely than not that all deferred tax assets will be recovered as the result of future operations, which will generate sufficient taxable income to realize the deferred tax asset.

Income tax expense for the years ended December 31, 2022 and 2021, differed from the amounts computed by applying the U.S. federal tax rate of 21% to pretax income from continuing operations as demonstrated in the following table:

	For the Year Ended December 31,
	2022			2021
Provision for income taxes at the statutory federal tax rates	$	(151,584	)	$	1,041,155
Increase (reduction) in taxes resulting from:
Dividends received deduction		(71,819	)		(34,207	)
Tax-exempt interest income		(49,460	)		(58,153	)
Proration of tax-exempt interest and dividends received deduction		29,506			22,359
Nondeductible expenses		74,159			48,155
Officer life insurance, net		(2,500	)		188
Prior year true-up and other		31,532			(204,395	)
Total	$	(140,166	)	$	815,102

The Company’s effective tax rate was 19.4% and 16.4% for 2022 and 2021, respectively. Effective rates are dependent upon components of pretax earnings and the related tax effects.

As of December 31, 2022, the Company does not have any capital or operating loss carryforwards. Periods still subject to Internal Revenue Service (IRS) audit include 2018 through current year. There are currently no open tax exams.