Entity information:

note 11 INCOME TAXES

 

The income tax benefit includes these components:

 

    2017     2016  
             
Taxes currently payable (receivable)   $ (7,000 )   $ 8,000  
Adjustment of deferred tax asset or liability for enacted changes in tax laws     39,000       -  
Deferred income taxes     (37,000 )     (67,000 )
    $ (5,000 )   $ (59,000 )

 

A reconciliation of income tax benefit at the statutory rate to the Company’s actual income tax benefit is shown below:

 

    2017     2016  
             
Computed at the statutory rate (34%)   $ (5,000 )   $ (317,000 )
Increase (decrease) resulting from                
Graduated tax rates     2,000       12,000  
Tax exempt income     (4,000 )     (4,000 ) 
State tax, net of federal tax benefit     8,000       5,000  
Deductible organization costs     (21,000 )     (21,000 )
Increase (decrease) in valuation allowance     -       236,000  
Tax rate differential on valuation allowance     -       32,000  
Adjustment of deferred tax asset or liability for enacted changes in tax laws     39,000       -  
Other     (24,000 )     (2,000 ) 
    $ (5,000 )   $ (59,000 )
Effective tax rate     35.7 %     6.3 %

 

On December 22, 2017, the Tax Cuts and Jobs Act legislation was enacted, which significantly changes the existing U.S. tax laws, including a reduction in the corporate tax rate from 35% to 21%, effective January 1, 2018, as well as other changes. As a result of enactment of the legislation, the Company incurred an additional one-time income tax expense of $39,000 during the fourth quarter of fiscal year 2017, primarily related to the remeasurement of certain deferred tax assets and liabilities. The new legislation is complex and requires significant detailed analysis. We do not currently expect significant adjustments will be necessary, but any further adjustments identified will be recognized in accordance with guidance contained in Staff Accounting Bulletin No. 118 from the U.S. Securities and Exchange Commission.

 

The tax effects of temporary differences related to deferred taxes shown on the balance sheet were:

 

    2017     2016  
Deferred tax assets                
Allowance for loan losses   $ 67,000     $ 79,000  
ESOP contribution     10,000       6,000  
Deferred loan fees     3,000       5,000  
Unrealized losses on securities available-for-sale     28,000       45,000  
Nonaccrual loan interest     1,000       1,000  
Charitable contribution carryforwards     166,000       236,000  
Net operating loss carryforward     66,000       66,000  
      341,000       438,000  
Deferred tax liabilities                
Accumulated depreciation     (9,000 )     (9,000 )
Other     (12,000 )     (19,000 )
      (21,000 )     (28,000 )
Net deferred tax asset before valuation allowance     320,000       410,000  
Valuation allowance                
Beginning balance     (236,000 )     -  
Adjustment of valuation allowance for enacted changes in tax laws     71,000       -  
(Increase) decrease during the period     -       (236,000 )
Ending balance     (165,000 )     (236,000 )
Net deferred tax asset   $ 155,000     $ 174,000  

 

At December 31, 2017, the Company had approximately $300,000 of net operating loss carry forward that will begin to expire in 2036.

 

In connection with the offering of common stock, in 2016 the Company contributed to the Central Federal Community Foundation $100,000 in cash and common stock with a fair value of $687,700 (68,770 shares at the $10.00 offering price) for a total contribution of $787,700. For Federal income tax purpose, the deduction for charitable contributions is subject to certain annual limitations with unused contributions carried forward five years subject to the same annual limitations.

 

At December 31, 2017 and 2016, the Company had recorded a valuation allowance against the entire deferred tax asset related to this contribution carryforward. The Company has determined it is more likely than not that this deferred tax asset will not be realized.

 

Retained earnings includes certain tax bad debt reserves for which no deferred income tax liability has been recognized. These reserves represent an allocation of income to bad debt deductions for tax purposes only for tax years prior to 1988. If these tax bad debt reserves are used for other than loan losses, the amount used will be subject to income taxes at the then prevailing corporate rate.