Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes [Abstract]

Income Taxes

Note 8. Income Taxes

Total income taxes were allocated as follows:

	2022			2021
Total tax expense on income	$	571		$	1,021
Tax benefit on components of shareholders’ equity:
Net unrealized losses on investment securities		(10,589	)		(1,944	)
Total tax benefit	$	(10,018	)	$	(923	)

A reconciliation of the differences between income taxes computed at the federal statutory income tax rate and the income tax benefit is as follows:

	2022			2021
Federal income tax provision at the statutory rate	$	440		$	1,112
Statutory rate		21	%		21	%
Dividends-received deduction		(24	)		(26	)
Meals and entertainment		61			32
Vested stock and club dues		14			(28	)
Parking disallowance		17			16
Penalties and fines		149			—
Adjustment for prior years’ estimates to actual		(86	)		(85	)
Income tax expense	$	571		$	1,021
Effective tax rate		27.2	%		19.3	%

The primary difference between the effective tax rate and the federal statutory income tax rate for 2022 resulted from a permanent difference related to penalties and fines incurred of $149.  Also contributing to differences between the effective tax rate and the federal statutory income tax rate were the adjustment for prior years’ estimates to actual that are generally updated at the completion of the third quarter of each fiscal year and were $86 in the year ended December 31, 2022. Other contributing factors to the differences between the effective tax rate and the federal statutory income tax rate were permanent differences related to meals and entertainment and the dividends-received deduction (“DRD”). The current estimated DRD is adjusted as underlying factors change and can vary from estimates based on, but not limited to, actual distributions from investments as well as the amount of the Company’s taxable income.

The primary differences between the effective tax rate and the federal statutory income tax rate for 2021 resulted from the adjustment for prior years’ estimates to actual that are generally updated at the completion of the third quarter of each fiscal year and were $85 in the year ended December 31, 2021. Also contributing to differences between the effective tax rate and the federal statutory income tax rate were permanent differences related to meals and entertainment and vested stock and club dues. Another contributing factor was the DRD.

Deferred tax assets and liabilities at December 31, 2022 and 2021 were comprised of the following:

	2022			2021
Deferred tax assets:
Deferred acquisition costs	$	7,953		$	7,026
Net unrealized investment losses		4,489			—
Insurance reserves		1,597			2,028
Impaired assets		791			780
Bad debts and other		252			280
Total deferred tax assets		15,082			10,114
Deferred tax liabilities:
Deferred and uncollected premiums	$	(835	)	$	(561	)
Net unrealized investment gains		—			(7,689	)
Other		(84	)		(109	)
Total deferred tax liabilities		(919	)		(8,359	)
Net deferred tax asset (liability)	$	14,163		$	1,755

The components of income tax expense were:

	2022			2021
Current – Federal	$	2,390		$	2,133
Deferred – Federal		(1,819	)		(1,112	)
Total	$	571		$	1,021

The Company has formal tax-sharing agreements, and files a consolidated income tax return, with its subsidiaries. Tax years 2019, 2020 and 2021 are considered open tax years that remain subject to examination by the Internal Revenue Service.