7.	Income Taxes

Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. Significant components of the net deferred tax assets and net deferred tax liabilities as reflected on the Consolidated Balance Sheets are as follows:

	December 31,
	2011			2010
	(in thousands)
Deferred tax liabilities:
Prepaid assets	$	(9,268	)	$	(10,051	)
Depreciation		(8,616	)		(8,390	)
Software development costs		(2,858	)		(1,198	)
Other		(1,137	)		(751	)
Total deferred tax liabilities		(21,879	)		(20,390	)

Deferred tax assets:
Accrued incentive compensation		3,877			3,100
Net operating loss carryforward		2,290			2,360
Workers' compensation accruals		3,744			3,055
Long-term capital loss carry-forward		148			188
Accrued rent		1,132			1,260
Stock-based compensation		2,908			2,657
Uncollectible accounts receivable		389			375
Total deferred tax assets		14,488			12,995
Valuation allowance		(148	)		(188	)
Total net deferred tax assets		14,340			12,807

Net deferred tax liabilities	$	(7,539	)	$	(7,583	)

Net current deferred tax assets	$	3,233		$	1,267
Net noncurrent deferred tax liabilities		(10,772	)		(8,850	)
	$	(7,539	)	$	(7,583	)

The components of income tax expense are as follows:

	Year ended December 31,
	2011			2010		2009
	(in thousands)
Current income tax expense:
Federal	$	16,816		$	12,668	$	14,478
State		3,535			1,734		1,994
Total current income tax expense		20,351			14,402		16,472
Deferred income tax (benefit) expense:
Federal		47			1,033		(4,162	)
State		(93	)		146		(235	)
Total deferred income tax (benefit) expense		(46	)		1,179		(4,397	)
Total income tax expense	$	20,305		$	15,581	$	12,075

As a result of nonqualified stock option exercises, disqualifying dispositions of certain employee incentive stock options and vesting of restricted stock awards, Insperity had a net income tax benefit of $1.7 million in 2011, a net income tax benefit of $25,000 in 2010 and a net income tax expense of $372,000 in 2009, respectively. The income tax benefit or expense was reported as a component of additional paid-in capital.

The reconciliation of income tax expense computed at U.S. federal statutory tax rates to the reported income tax expense from continuing operations is as follows:

	Year ended December 31,
	2011			2010			2009
	(in thousands)

Expected income tax expense at 35%	$	17,770		$	13,307		$	10,027
State income taxes, net of federal benefit		2,249			1,273			1,053
Nondeductible expenses		904			1,092			1,093
Research and development credit		(558	)		––			––
Other, net		(60	)		(91	)		(98	)
Reported total income tax expense	$	20,305		$	15,581		$	12,075

Insperity has capital loss carryforwards totaling approximately $400,000 that will expire during 2012, but can only be used to offset future capital gains. Insperity has a valuation allowance of $400,000 against these related deferred tax assets as we are uncertain that we will be able to utilize the capital loss carryforwards prior to their expiration. At December 31, 2011, we have net operating loss carryforwards totaling approximately $6.1 million that expire from 2021 to 2030 related to our acquisition of ExpensAble.

We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2011, 2010 and 2009, we made no provisions for interest or penalties related to uncertain tax positions. The tax years 2008 through 2010 remain open to examination by the Internal Revenue Service of the United States.