Note 8 - Income Taxes

12 Months Ended

Dec. 31, 2023

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,
	2023		2022
Deferred tax assets:
Tax discounting of claim reserves	$	1,018,934	$	931,054
Unearned premium reserve		1,981,064		1,686,905
Net unrealized depreciation of securities		1,283,391		2,105,391
Deferred compensation		315,575		316,051
Provision for uncollectible accounts		27,300		10,500
Other		191,577		89,347
Deferred tax assets before allowance		4,817,841		5,139,248
Less valuation allowance		—		—
Total deferred tax assets	$	4,817,841	$	5,139,248
Deferred tax liabilities:
Transition Adjustment for Loss Reserve Discounting	$	75,392	$	113,088
Deferred policy acquisition costs		1,796,016		1,505,078
Property and equipment		175,571		143,047
Other		123,226		81,347
Total deferred tax liabilities		2,170,205		1,842,560
Net deferred tax asset	$	2,647,636	$	3,296,688

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, 2023, and 2022, 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,
	2023			2022
Provision for income taxes at the statutory federal tax rates	$	1,159,640		$	(151,584	)
Increase (reduction) in taxes resulting from:
GAAP Adjustments for Investments, DAC, and eliminations		(512,357	)		818,894
Permanent tax differences		(11,327	)		(20,114	)
Temporary tax differences		393,686			350,153
PY Federal true-up		(35,328	)		245,049
PY State true-up		69,742			(16,275	)
State tax expense		112,026			107,519
Change in DTA		89,117			(1,125,063	)
Prior year payments applied not already accounted for in PY provision		—			(350,000	)
Other		—			1,255
Total	$	1,265,199		$	(140,166	)

The Company’s effective tax rate was 22.9% and 19.4% for 2023 and 2022, respectively. Effective rates are dependent upon components of pretax earnings and the related tax effects.

As of December 31, 2023, the Company does not have any capital or operating loss carryforwards. Periods still subject to Internal Revenue Service (IRS) audit include 2020 through current year. There are currently no open tax exams.