Delanco Bancorp, Inc.

14.	INCOME TAXES

The Company is subject to federal and New Jersey state income tax.

The Company and subsidiary file a consolidated federal income tax return. The Company’s consolidated provision (credit) for income taxes for the years ended

March 31, 2017

and

2016

consists of the following:

	Years Ended
	March 31,
	2017		2016
Income Tax Expense (benefit)
Current federal tax expense
Federal	$		$	-
State		3,000		3,000
Deferred tax (benefit)
Federal		69,238		(85,569	)
State		20,903		29,971

Total	$	93,141	$	(52,598	)

The consolidated provision for income taxes for the years ended

March 31, 2017

and

2016

differs from that computed by applying federal statutory rates to income before federal income tax expense, as indicated in the following analysis:

	Years Ended
	March 31,
	2017			2016

Expected federal tax provision (benefit) at 34% rate	$	71,784		$	(24,027	)
Municipal bond interest		(1,404	)		(469	)
Increase in cash surrender value of life insurance		(1,564	)		(1,700	)
State income tax		24,325			(26,402	)
Total income tax (benefit)	$	93,141		$	(52,598	)

Effective tax rate (benefit)		44.1	%		(74.4%	)

A summary of deferred tax assets and liabilities as of

March 31, 2017

and

2016

are as follows:

	March 31,
	2017			2016
Deferred tax assets:
Accrued pension costs	$	23,900		$	9,500
Allowance for loan losses		350,300			438,935
Directors’ benefit plans		138,500			131,500
Employee stock option		50,600			32,200
FASB 158 – unrecognized transition costs		87,800			91,100
Federal tax loss carryforward		1,016,400			1,050,900
State tax loss carryforward		360,200			372,800
Non accrual interest		28,000			15,000
Total deferred tax assets	$	2,055,700		$	2,141,935

Valuation allowance		(24,800	)		-

	March 31,
	2017			2016
Deferred tax liabilities:
Accumulated depreciation	$	(46,500	)	$	(64,000	)
Unrealized gains on securities available-for-sale		(2,450	)		(11,400	)

Total deferred tax liabilities		(48,950	)		(75,400	)

NET DEFERRED TAX ASSETS	$	1,981,950		$	2,066,535

The Company accounts for uncertainties in income taxes in accordance with FASB ASC Topic

740

“Accounting for Uncertainty in Income Taxes”. The Company has determined that there are

significant uncertain tax positions requiring recognition in its financial statements.

In the event the Company is assessed for interest and/or penalties by taxing authorities, such assessed amounts will be classified in the financial statements as income tax expense. As of

March 2017,

the Internal Revenue Service had concluded an audit of the Company’s tax returns for the years ended

December 31, 2014

and

2015

and

adverse findings were noted. The federal income tax returns for taxable years through

December 31, 2015

have been closed for purposes of examination by the Internal Revenue Service. Tax year

2016

remains subject to examination by Federal taxing authorities. Tax years

2013

through

2016

remain subject to examination by New Jersey taxing authorities.

The Company has considered future market growth, forecasted earnings, future taxable income, and prudent, feasible and permissible tax planning strategies in determining the realizability of deferred tax assets. If the Company were to determine that it would

not

be able to realize a portion of its net deferred tax assets in the future, an adjustment to the net deferred tax assets would be charged to earnings in the period such determination was made.

As of

March 31, 2017,

the Company had approximately

$3,270,000

federal net operating loss carryforwards, which result in a deferred tax asset of

$1,016,400,

expiring from

2029

through

2035.

As of

March 31, 2017,

the Company had approximately

$4,000,000

of state net operating loss carryforwards, which result in a deferred tax asset of

$360,200,

expiring from

2029

through

2035.