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,
	2020		2019
Deferred tax assets:
Tax discounting of claim reserves	$	834,092	$	765,820
Unearned premium reserve		1,236,617		1,264,887
Deferred compensation		152,646		140,141
Provision for uncollectible accounts		31,500		21,000
Net unrealized depreciation of securities		—		—
Other		(31,340)		93,631
Deferred tax assets before allowance		2,223,515		2,285,479
Less valuation allowance		—		—
Total deferred tax assets	$	2,223,515	$	2,285,479
Deferred tax liabilities:
Transition Adjustment for Loss Reserve Discounting	$	188,480	$	226,176
Net unrealized appreciation of securities		2,099,499		959,204
Deferred policy acquisition costs		1,140,220		1,110,676
Property and equipment		22,963		25,093
Other		3,624		3,543
Total deferred tax liabilities		3,454,786		2,324,692
Net deferred tax liability	$	(1,231,271)	$	(39,213)

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 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, 2020 and 2019, 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,
	2020		2019
Provision for income taxes at the statutory federal tax rates	$	961,455	$	1,067,128
Increase (reduction) in taxes resulting from:
Paycheck Protection Program loan forgiveness		(344,673)		—
Dividends received deduction		(29,474)		(22,542)
Tax-exempt interest income		(61,956)		(75,766)
Proration of tax-exempt interest and dividends received deduction		22,199		24,034
Officer life insurance, net		5,784		(14,004)
Nondeductible expenses		41,418		57,980
Prior year true-up and other		452,240		(249,615)
Total	$	1,046,993	$	787,215

The Company’s effective tax rate was 22.9% and 15.5% for 2020 and 2019, respectively. Effective rates are dependent upon components of pretax earnings and the related tax effects.

As of December 31, 2020, the Company does not have any capital or operating loss carryforwards. Periods still subject to Internal Revenue Service (IRS) audit include 2017 through current year. There are currently no open tax exams.