| Note 9: | Income Taxes |
The Company and its subsidiary file income tax returns in the U.S. federal and state of Illinois jurisdictions. During the years ended December 31, 2017 and 2016, the Company did not recognize expense for interest or penalties.
The provision for income taxes includes these components:
| 2017 | 2016 | |||||||
| Taxes currently payable | ||||||||
| Federal | $ | 1,286,506 | $ | 916,248 | ||||
| State | 366,935 | 314,017 | ||||||
| Deferred income taxes | 446,854 | (142,607 | ) | |||||
| Income tax expense | $ | 2,100,295 | $ | 1,087,658 | ||||
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:
| 2017 | 2016 | |||||||
| Computed at the statutory rate (34%) | $ | 1,543,979 | $ | 1,406,093 | ||||
| Increase (decrease) resulting from | ||||||||
| Tax exempt interest | (440,716 | ) | (445,584 | ) | ||||
| State income taxes, net | 234,225 | 184,535 | ||||||
| Increase in cash surrender value | (55,192 | ) | (58,651 | ) | ||||
| Deferred tax asset adjustment for tax rate change | 815,779 | — | ||||||
| Other | 2,220 | 1,265 | ||||||
| Actual tax expense | $ | 2,100,295 | $ | 1,087,658 | ||||
| Tax expense as a percentage of pre-tax income | 46.25 | % | 26.30 | % | ||||
The tax effects of temporary differences related to deferred taxes shown on the consolidated balance sheets were:
| 2017 | 2016 | |||||||
| Deferred tax assets | ||||||||
| Allowance for loan losses | $ | 728,735 | $ | 1,050,004 | ||||
| Deferred compensation | 1,389,417 | 1,830,687 | ||||||
| Net unrealized loss on available for sale securities | 206,784 | 605,970 | ||||||
| Other | 87,073 | — | ||||||
| 2,412,009 | 3,486,661 | |||||||
| Deferred tax liabilities | ||||||||
| Depreciation | (282,852 | ) | (390,787 | ) | ||||
| Federal Home Loan Bank stock dividends | (34,069 | ) | (48,291 | ) | ||||
| Prepaid expenses | (46,390 | ) | (65,504 | ) | ||||
| Mortgage servicing rights | (155,949 | ) | (216,238 | ) | ||||
| Other | — | (27,052 | ) | |||||
| (519,260 | ) | (747,872 | ) | |||||
| Net deferred tax asset | $ | 1,892,749 | $ | 2,738,789 | ||||
Retained earnings at December 31, 2017 and 2016 include approximately $2,600,000, for which no deferred federal income tax liability has been recognized. These amounts represent an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then-current corporate income tax rate. The deferred income tax liabilities on the preceding amounts that would have been recorded if they were expected to reverse into taxable income in the foreseeable future were approximately $750,000 and $1,000,000 at December 31, 2017 and 2016, respectively.