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,
	2017		2016
Deferred tax assets:
Tax discounting of claim reserves	$	454,772	$	730,161
Unearned premium reserve		1,139,002		1,710,498
AMT credit carryforward		103,439		—
Deferred compensation		131,175		356,650
Provision for uncollectible accounts		10,500		17,000
Property and equipment		—		837
Other		71,688		88,393
Deferred tax assets before allowance		1,910,576		2,903,539
Less valuation allowance		—		—
Total deferred tax assets	$	1,910,576	$	2,903,539
Deferred tax liabilities:
Net unrealized appreciation of securities	$	592,005	$	594,575
Deferred policy acquisition costs		964,407		1,415,395
Property and equipment		1,267		—
Other		3,639		5,315
Total deferred tax liabilities		1,561,318		2,015,285
Net deferred tax asset	$	349,258	$	888,254

Income tax expense attributable to income from operations for the years ended December 31, 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 table:



	Years ended December 31,
	2017		2016
Provision for income taxes at the statutory federal tax rates	$	367,246	$	1,355,704
Increase (reduction) in taxes resulting from:
Dividends received deduction		(48,020)		(36,414)
Tax-exempt interest income		(219,550)		(163,011)
15% proration of tax exempt interest and dividends received decution		38,203		29,914
Officer life insurance, net		(546)		(1,292)
Nondeductible expenses		70,329		47,766
Effect of change in tax rate		152,173		—
Prior year true-ups and other		12,450		(55,698)
Total	$	372,285	$	1,176,969

The Company’s effective tax rate was 34.5% and 29.5% for 2017 and 2016, respectively. Effective rates are dependent upon components of pretax earnings and the related tax effects.

The Company had historically recorded its deferred tax assets and liabilities using the statutory federal tax rate of 34%. The Tax Act was signed into law on December 22, 2017 and lowered the federal corporate tax rate to 21% effective January 1, 2018. As a result, the Company revalued deferred tax items as of year-end 2017 to reflect the lower rate. The revaluation of of deferred tax items increased income tax expense by $152,173 and increased the effective tax rate by 14.1%. The Tax Cuts and Jobs Act of 2017 provides for a change in the methodology employed to calculate reserves for tax purposes. Beginning January 1, 2018, a higher interest rate assumption and longer payout patterns will be used to discount these reserves. In addition, companies will no longer be able to elect to use their own experience to discount reserves, but will instead be required to use the industry-based tables published by the IRS annually; however, the 2018 tables have yet to be released. Consequently, the Company cannot reasonably estimate the impact this would have on gross deferred taxes at December 31, 2017. However, this would not impact the net deferred tax asset. The Company also continues to analyze certain aspects of the Tax Act and further refinements are possible, which could potentially affect the measurement of these balance or potentially give rise to new deferred tax amounts, although management does not expect these adjustments to materially impact its financial statements.

Management believes it is more likely than not that all deferred tax assets will be recovered given the carry back availability of insurance company losses as well as the results 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 21%.

As of December 31, 2017, the Company does not have any capital or operating loss carryforwards. Periods still subject to Internal Revenue Service (IRS) audit include 2014 through current year. There are currently no open tax exams.