9) Income Taxes

12 Months Ended

Dec. 31, 2019

Notes

9) Income Taxes

9)Income Taxes 

The Company’s income tax liability is summarized as follows:

	December 31
	2019	2018
Current	$    1,410,153	$       473,800
Deferred	17,276,819	15,649,198
Total	$  18,686,972	$   16,122,998

Significant components of the Company’s deferred tax (assets) and liabilities are approximately as follows:

	December 31
	2019	2018
Assets
Future policy benefits	$ (12,450,229)	$    (8,293,592)
Loan loss reserve	(1,053,256)	(938,496)
Unearned premium	(760,556)	(823,299)
Available for sale securities	-	(366,279)
Net operating loss	(438,420)	(593,272)
Deferred compensation	(1,996,865)	(1,677,118)
Deposit obligations	(619,633)	(610,769)
Other	(1,020,718)	(185,557)
Less: Valuation allowance	2,439,394	-
Total deferred tax assets	(15,900,283)	(13,488,382)
Liabilities
Deferred policy acquisition costs	15,536,717	15,255,960
Basis difference in property and equipment	3,638,512	4,309,162
Value of business acquired	2,074,096	1,210,690
Deferred gains	5,169,104	6,267,373
Trusts	1,064,387	1,064,387
Tax on unrealized appreciation	5,694,286	1,030,008
Total deferred tax liabilities	33,177,102	29,137,580
Net deferred tax liability	$  17,276,819	$   15,649,198

The valuation allowance relates to differences between recorded deferred tax assets and liabilities and ultimate anticipated realization.  For the year ended December 31, 2019, the Company has recorded a valuation allowance related to Kilpatrick Life Insurance Company that was acquired in December 2019. See Note 20 regarding the acquisition.

The Company paid $4,861,318 and $5,701,565 in income taxes for the years ended December 31, 2019 and 2018, respectively.

The Company’s income tax expense is summarized as follows for the years ended December 31:

	2019	2018
Current
Federal	$    4,404,041	$    6,933,145
State	504,272	166,567
	4,908,313	7,099,712
Deferred
Federal	(1,551,725)	(1,838,947)
State	(306,172)	(766,454)
	(1,857,897)	(2,605,401)
Total	$    3,050,416	$    4,494,311

The reconciliation of income tax expense (benefit) at the U.S. federal statutory rates is as follows:

	2019	2018
Computed expense at statutory rate	$    2,928,226	$    5,497,882
State tax expense, net of federal tax benefit	156,499	(473,911)
Change in valuation allowance	194,364	-
Other, net	(228,673)	(529,660)
Income tax expense	$    3,050,416	$    4,494,311

The Company’s overall effective tax rate for the years ended December 31, 2019 and 2018 was 21.9% and 17.2%, respectively.  The Company’s effective tax rates differ from the U.S. federal statutory corporate income tax rate of 21% partially due to its provision for state income taxes and an increase to the valuation allowance related to Kilpatrick Life Insurance Company that increased the effective income tax rate when compared to the prior year.

At December 31, 2019, the Company had no significant unrecognized tax benefits. As of December 31, 2019, the Company does not expect any material changes to the estimated amount of unrecognized tax benefits in the next twelve months. Federal and state income tax returns for 2016 through 2019 are subject to examination by taxing authorities.

Net Operating Losses and Tax Credit Carryforwards:

Year of Expiration
2020	$      114,601
2021	17,101
2022	-
2023	-
2024	-
Thereafter up through 2037	1,701,126
	$   1,832,828