7. INCOME TAXES

The Company’s effective tax rate for the nine month period ended September 30, 2017, was -15.3%, compared to 30.1% for the same period in 2016. Effective rates are dependent upon components of pretax earnings and the related tax effects.

Income tax expense for the three and nine-month periods ended September 30, 2017 and 2016, differed from the amounts computed by applying the U.S. federal tax rate of 34% to pretax income from continuing operations as demonstrated in the following tables:



	For the Three-Months Ended
	September 30,
	2017		2016
Provision for income taxes at the statutory federal tax rates	$	(248,017)	$	280,802
Increase (reduction) in taxes resulting from:
Dividends received deduction		(9,104)		—
Tax-exempt interest income		(73,260)		(38,644)
15% proration of tax exempt interest and dividends received decution		9,664		9,894
Officer life insurance, net		5,794		(14,606)
Nondeductible expenses		14,089		(90,801)
State taxes		(1,019)		—
Prior year true-ups and other		(78,828)		(15,725)
Total	$	(380,681)	$	130,920



	For the Nine-Months Ended
	September 30,
	2017		2016
Provision for income taxes at the statutory federal tax rates	$	75,099	$	770,034
Increase (reduction) in taxes resulting from:
Dividends received deduction		(27,311)		—
Tax-exempt interest income		(165,241)		(121,240)
15% proration of tax exempt interest and dividends received decution		26,192		22,283
Officer life insurance, net		16,590		(3,019)
Nondeductible expenses		31,430		30,853
State taxes		(1,019)		—
Prior year true-up and other		—		(19,641)
Total	$	(44,260)	$	679,270

The Company has recorded its deferred tax assets and liabilities using the statutory federal tax rate of 34%. 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. In addition, it is believed that when these deferred items reverse in future years, taxable income will be taxed at an effective rate of 34%.

As of September 30, 2017 and December 31, 2016, the Company does not have any capital or operating loss carryforwards. Periods still subject to Internal Revenue Service (IRS) audit include 2013 through current year. There are currently no open tax exams.