INCOME TAXES

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The Company has elected to be treated as an S corporation for income tax reporting purposes. The taxable income or loss of an S corporation is treated as income of and is reportable in the individual tax returns of the shareholders of the Company in an appropriate allocation. Accordingly, deferred income tax assets and liabilities have been eliminated and no provisions for current and deferred income taxes were made by the Company except for amounts attributable to state income taxes for certain states, which do not recognize S corporation status for income tax reporting purposes. Deferred income tax assets and liabilities will continue to be recognized and provisions for current and deferred income taxes will be made by the Company’s subsidiaries as they are not permitted to be treated as S Corporations.

We account for income taxes under the asset and liability method, which requires the recognition of Deferred Tax Assets, “DTAs”, and Deferred Tax Liabilities, “DTLs”, for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date.

We recognize DTAs to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. If we determine that we would be able to realize our DTAs in the future in excess of their net recorded amount, we would make an adjustment to the DTA valuation allowance, which would reduce the provision for income taxes.

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

We recognize interest and penalties related to unrecognized tax benefits, “UTBs”, on the interest expense line and other expense line, respectively, in the accompanying consolidated statement of operations. Accrued interest and penalties are included on the related liability lines in the consolidated balance sheet.

The provision for income taxes for the years ended December 31, 2023, 2022 and 2021 is made up of the following components:

	2023		2022		2021
Current – Federal	$	4,389,030	$	4,280,033	$	2,859,997
Current – State	39,339		289,345		595,915
Total Current	4,428,369		4,569,378		3,455,912
Deferred tax expense (benefit)	392,024		(151,474)		487,481
Total Provision	$	4,820,393	$	4,417,904	$	3,943,393

Temporary differences create deferred federal tax assets and liabilities, which are detailed below as of December 31, 2023 and 2022. These amounts are included in accounts payable and accrued expenses in the accompanying consolidated statements of financial position.

	As Of December 31,
	2023		2022
Deferred Tax Assets:
Unearned Premium Reserves	$	2,132,375	$	2,042,304
Unrealized Loss (Gain) on
Marketable Debt Securities	5,038,864		7,018,205
SPAE Capitalization	33,195		31,643
STAT & Tax Reserve	690,797		643,782
Total Deferred Tax Assets	$	7,895,231	$	9,735,934
Deferred Tax Liabilities:
Insurance Commissions	(5,270,518)		(4,774,456)
Deferred Acquisition Cost Amortization	(1,589,701)		(1,554,166)
GAAP/STAT Premium Tax	(229,493)		(198,450)
Unrealized Loss (Gain) on
Marketable Debt Securities	—		—
Other	(37,155)		(66,235)
Total Deferred Tax Liabilities	(7,126,867)		(6,593,307)
Net Deferred Tax Asset (Liability)	$	768,364	$	3,142,627

The Company's effective tax rate for the years ended December 31, 2023, 2022 and 2021 is analyzed as follows.

	2023		2022		2021
Statutory Federal income tax rate	21.0	%	21.0	%	21.0	%
Tax effect of S corporation status	92.5		5.0		(11.3)
Tax exempt income	(24.1)		(5.9)		(2.4)
State income taxes	0.7		1.4		1.3
Effective Tax Rate	90.1	%	21.5	%	8.6	%