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,
		2018		2017
Deferred tax assets:
Tax discounting of claim reserves		$	814,193	$	454,772
Unearned premium reserve			1,255,183		1,139,002
AMT credit carryforward			—		103,439
Deferred compensation			103,178		131,175
Provision for uncollectible accounts			10,500		10,500
Net unrealized depreciation of securities			420,259		—
Other			53,193		71,688
Deferred tax assets before allowance			2,656,506		1,910,576
Less valuation allowance			—		—
Total deferred tax assets		$	2,656,506	$	1,910,576
Deferred tax liabilities:
Transition adjustment for loss reserve discounting	$		292,176	$	—
Net unrealized appreciation of securities			—		592,005
Deferred policy acquisition costs			1,101,910		964,407
Property and equipment			237,581		1,267
Other			3,441		3,639
Total deferred tax liabilities			1,635,108		1,561,318
Net deferred tax asset		$	1,021,398	$	349,258

The Tax Cuts and Jobs Act of 2017 (the Tax Act) was enacted on December 22, 2017 and lowered the federal corporate tax rate to 21% effective January 1, 2018. As a result, the Company revalued its deferred tax items as of December 31, 2017 to reflect the 21% rate as provided for in the Tax Act. The Tax Act required a change in the methodology employed to calculate reserves for tax purposes. Beginning in 2018, a higher interest rate assumption and longer payout patterns will be used to discount loss 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 Internal Revenue Service (IRS) annually.

In December 2018, the Treasury issued Rev Proc 2019-06, which included revised loss reserve discounting factors and transitional guidance necessary to complete the accounting for the impacts of the Tax Act. The transitional adjustment for loss reserve discounting was calculated as of January 1, 2018 and the resulting adjustment will be 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, 2018 and 2017, differed from the amounts computed by applying the U.S. federal tax rate of 21% and 34%, respectively, to pretax income from continuing operations as presented in the following table:



	Years ended December 31,
	2018		2017
Provision for income taxes at the statutory federal tax rates	$	209,870	$	367,246
Increase (reduction) in taxes resulting from:
Dividends received deduction		(35,802)		(48,020)
Tax-exempt interest income		(128,292)		(219,550)
15% proration of tax exempt interest and dividends received deduction		40,522		38,203
Officer life insurance, net		4,429		(546)
Nondeductible expenses		44,505		70,329
Effect of change in tax rate		—		152,173
Prior year true-ups and other		(29,145)		12,450
Total	$	106,087	$	372,285

The Company’s effective tax rate was 10.6% and 34.5% for 2018 and 2017, respectively. Effective rates are dependent upon components of pretax earnings and the related tax effects.

As of December 31, 2018, the Company does not have any capital or operating loss carryforwards. Periods still subject to Internal Revenue Service (IRS) audit include 2015 through current year. There are currently no open tax exams.