The provision for income taxes includes these components for the years ended December 31, 2017 and December 31, 2016:

 

		2017			2016
Taxes currently payable		$	215,770		$	203,591
Deferred income taxes			(182,175)			144,977
Income tax expense		$	33,595		$	348,568

 

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%)		$	309,004		$	367,930
Increase (decrease) resulting from
Deferred tax re-valuation			(229,969)			-
Bank-owned life insurance			(27,771)			(29,807)
Other			(17,669)			10,445
Actual tax expense		$	33,595		$	348,568

 

A reconciliation between the statutory income tax and the Company's effective tax rate follows:

 

		2017				2016
Computed at the statutory rate (34%)			34.00	%			34.00	%
Increase (decrease) resulting from Change in effective tax rate			(25.30)	%			-
Bank-owned life insurance			(3.06)	%			(2.75)	%
Other			(1.94)	%			0.96	%
Effective tax rate			3.70	%			32.21	%

 

The tax effects of temporary differences related to deferred taxes shown on the balance sheets at December 31, 2017 and December 31, 2016 were:

 

		2017			2016
Deferred tax assets
Allowance for loan losses		$	267,953		$	450,930
Loans held for sale			12,000			10,489
Directors' Retirement Plan			92,533			142,773
Other			36,914			-
			409,400			604,192
Deferred tax liabilities
Deferred loan costs			(100,757)			(145,498)
Prepaid penalties on FHLB advances			(2,592)			(15,087)
Dividends on FHLB stock			(103,227)			(167,129)
Mortgage servicing rights			(191,062)			(248,256)
FHLB lender risk account receivable			(358,805)			(579,908)
Depreciation			(15,116)			-
Unrealized gains on available-for-sale securities			(223)			(6,569)
			(771,782)			(1,162,447)
Net deferred tax liability		$	(362,382)		$	(558,255)

 

On December 22, 2017, tax reform legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law, resulting in significant modifications to existing tax law. As a result of the changes under the Tax Act, the Company recorded an incremental income tax benefit of $229,969 during the year ended December 31, 2017, which consisted primarily of the remeasurement of deferred tax assets and liabilities at the new federal statutory rate of 21%. Prior to the enactment of the Tax Act, deferred tax assets and liabilities were measured at the previous federal statutory rate of 34%.

 

Retained earnings at both December 31, 2017 and December 31, 2016, include approximately $766,000 for which no deferred federal income tax liability has been recognized. This amount represents 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 liability on the preceding amount that would have been recorded if it was expected to reverse into taxable income in the foreseeable future was approximately $160,900 and $260,000 at December 31, 2017 and December 31, 2016, respectively.