Income Taxes

DLH accounts for income taxes in accordance with the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reflected on the balance sheet when it is determined that it is more likely than not that the asset will be realized. This guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized. We also set up a valuation allowance, reducing the carrying value of deferred tax assets if it is more likely than not that some or all of the deferred tax asset will not be realized, as based on estimated future taxable income. Presently, the Company has no deferred tax asset valuation allowances.

During the fiscal year ending September 30, 2018, the Company recognized a $3.4 million write-down of deferred tax assets from revaluation of our net operating loss carryforwards from the previously recognized federal income tax rate of 34% to the 21% rate in the 2017 Tax Act enacted in December 2017. In addition to this discrete item the Company recognized $2.4 million of income tax expense associated with current operations resulting in total income tax expense of $5.8 million for the 2018 fiscal year. The fiscal year 2018 effective tax rate, excluding the discrete item associated with the deferred tax asset write-down was 32.2% as compared to the prior year effective tax rate of 39.1%.

At September 30, 2018 and 2017, respectively, the Company had federal net operating losses of approximately $23.8 million and $31.5 million. The Company utilized approximately $7.7 million of federal net operating losses to offset taxes otherwise currently due. The federal NOLs begin to expire in 2021 and continue to expire through 2033. The Company has no material state net operating losses carryforward.

A provision of the 2017 Tax Act repealed the alternative minimum tax (AMT). Additionally, prior AMT paid is either creditable against regular tax liability or refundable. For tax years beginning after 2017 and before 2022, 50 percent of AMT credits are refundable; from 2022, the credits are fully refundable. The Company has AMT credits of $369 thousand as of the year ended September 30, 2018, of which 50 percent has been established as an income tax receivable in current assets.

An analysis of DLH's deferred tax asset and liability is as follows:



	Year Ended
	September 30,
(amounts in thousands)	2018			2017
Deferred income tax asset:
Net operating loss carry forwards	$	5,005		$	10,786
AMT credit carryforward	185			316
Stock based compensation	140			236
Accrued expenses	1,202			1,303
Other items, net	45			241
Total deferred tax asset	6,577			12,882
Deferred tax liability:
Fixed and intangible assets	(2,440		)	(3,243		)
Net deferred tax asset	$	4,137		$	9,639

The significant components of income tax expense for income taxes from continuing operations are summarized as follows:



	Year Ended
	September 30,
(amounts in thousands)	2018		2017
Current expense	$	328	$	338
Deferred expense	5,502		1,776
Total expense	$	5,830	$	2,114

The following table indicates the significant differences between our income taxes at the federal statutory rate and DLH's effective tax rate for continuing operations:



	Year Ended
	September 30,
(amounts in thousands)	2018		2017
Federal statutory rate	$	1,861	$	1,837
State taxes, net	393		260
Other permanent items	77		17
Miscellaneous true up of prior year deferred	134		—
Discrete item (a)	3,365		—
Total	$	5,830	$	2,114

(a): Write-down of deferred tax assets due to change in federal income tax rate from the 2017 Tax Act.

We file income tax returns in the U.S. federal jurisdiction and in various state jurisdictions. We are no longer subject to income tax examinations for years before 2015.