Entity information:
10.
FEDERAL INCOME TAXES
 
The components of the provision for income taxes are summarized as follows for the years ended
December 
31,
2017,
2016
and
2015,
respectively:
 
   
2017
    
2016
    
2015
  
                         
Current tax expense:
                        
Federal
   $
1,464,411
     $
1,520,374
     $
1,075,126
  
State and local
    
37,993
      
32,578
      
25,922
  
                         
Total current tax expense
    
1,502,404
      
1,552,952
      
1,101,048
  
                         
Deferred tax benefit
                        
Federal
    
477,341
      
(180,068
 )    
(295,047
 )
State and local
    
(8,623
 )    
(9,400
 )    
(7,578
 )
                         
Total deferred tax benefit
    
468,718
      
(189,468
 )    
(302,625
 )
                         
Total provision for income taxes
   $
1,971,122
     $
1,363,484
     $
798,423
  
 
Deferred tax assets and liabilities are comprised of the following:
 
   
2017
    
2016
  
Deferred tax assets:
                
Unearned premiums
   $
64,532
     $
86,212
  
Net operating loss
    
13,061
      
25,231
  
Recapitalization intangible
    
29,792
      
48,234
  
Accrued vacation
    
62,170
      
87,028
  
Accrued commissions
    
192,291
      
429,267
  
Deferred compensation
    
961,463
      
1,281,799
  
Legal Fees
    
81,364
      
 
  
Accrued professional fees
    
38,784
      
47,430
  
Unrealized loss on investments
    
21,308
      
30,774
  
Other, net
    
75,898
      
87,968
  
                 
Gross deferred tax assets
    
1,540,663
      
2,123,943
  
                 
Valuation Allowance
    
(29,792
 )    
(48,234
 )
                 
Gross deferred tax assets, net of valuation allowance
    
1,510,871
      
2,075,709
  
                 
Deferred tax liabilities:
                
Deferred policy acquisition costs
    
96,483
      
163,923
  
Prepaid insurance
    
74,503
      
125,784
  
Property and equipment
    
200,739
      
160,033
  
Identifiable intangible assets
    
8,566
      
17,134
  
                 
Gross deferred tax liabilities
    
380,291
      
466,874
  
                 
Net deferred tax asset
   $
1,130,580
     $
1,608,835
  
 
Management believes it is more likely than
not
that deferred tax assets, net of valuation allowance will reduce future income tax payments. Significant factors considered by management in its determination of the probability of the realization of the deferred tax benefits include the historical operating results and the expectations of future earnings. The Company had
$38,415,
$74,209,
and
$86,226,
of net operating loss carry forwards to utilize in future years at
December 31, 2017,
2016,
and
2015,
respectively. These losses will expire between
2019
and
2025.
Net deferred tax assets are included in other assets in the accompanying consolidated balance sheets at
December 31, 2017
and
2016.
 
The Company’s effective tax rate was different from the U.S statutory rate due to the following:
 
   
 
 
 
  
 
 
 
  
 
 
 
  
2017
    
2016
    
2015
  
   
 
 
 
  
 
 
 
  
 
 
 
  
Effective Tax
    
Effective Tax
    
Effective Tax
  
   
2017
    
2016
    
2015
    
Rate
    
Rate
    
Rate
  
                                                 
Provision computed at statutory rate
   $
1,292,189
     $
1,139,903
     $
597,213
      
34.0
 %    
34.0
 %    
34.0
 %
State and local taxes
    
29,323
      
23,101
      
9,309
      
0.8
      
0.7
      
0.5
  
Nondeductible meals, entertainment and legal expense
    
11,143
      
26,899
      
23,156
      
0.3
      
0.8
      
1.3
  
Tax Act adoption impact
    
691,921
      
 
      
 
      
18.2
      
 
      
 
  
Nondeductible federal premium tax
    
 
      
189,558
      
168,745
      
 
      
5.7
      
9.7
  
Other
—net
    
(53,454
 )    
(15,977
 )    
 
      
(1.4
 )    
(0.5
 )    
 
  
                                                 
Provision for income taxes
   $
1,971,122
     $
1,363,484
     $
798,423
      
51.9
 %    
40.7
 %    
45.5
 %
 
In
December 2017,
the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code beginning in
2018,
which will reduce the corporate tax rate from
34%
to
21%.
The rate reduction required a remeasurement of the Company’s net deferred tax asset
. 
These items resulted in an estimated increase in our
2017
tax expense of approximately 
$692,000.
 
The Tax Act is subject to further clarification and interpretation by the U.S. Treasury Department and the Internal Revenue Service. For example, the Tax Act changes the way that companies calculate their insurance claims and reserves for tax purposes, including revaluing those tax basis liabilities as of
January 1, 2018,
based on a methodology and discount factors that have
not
been published. The resulting transitional deferred tax liability and offsetting increase in the Company
’s insurance claims and reserves deferred tax assets, were recorded at
December 31, 2017
using reasonable estimates based on available information and should be considered provisional in accordance with Securities and Exchange Commission Staff Accounting Bulletin
No.
118
(“SAB
118”
). Because the established transition liability was completely offset by an increase in related deferred tax assets, any adjustment to the provisional amount will
not
impact the Company’s effective tax rate. In accordance with SAB
118,
the insurance claims and reserves transitional deferred tax liability (and offsetting adjustment to the related deferred tax assets) and any other changes in deferred taxes resulting from clarification and interpretation of the Tax Act provided during
2018
will be recorded in the period in which the guidance is published.