ATLANTIC AMERICAN CORPAAME

ATLANTIC AMERICAN CORP Income Taxes Disclosure

10-KFiled Mar 25, 20253 min read
Note 9.
Income Taxes


Total income taxes were allocated as follows:

   
2024
    
2023
  
Total tax benefit on income
  
$
(996
)
  
$
(394
)
                 
Tax expense (benefit) on components of shareholders’ equity:
                
Net unrealized income (losses) on investment securities
    
(689
)
    
1,602
  
Total tax expense (benefit)
  
$
(1,685
)
  
$
1,208
  


A reconciliation of the differences between income taxes computed at the federal statutory income tax rate and the income tax benefit is as follows:

   
2024
    
2023
  
Federal income tax provision at the statutory rate
  
$
(1,105
)
  
$
(119
)
Statutory rate
    
21
%
    
21
%
Dividends-received deduction
    
(25
)
    
(24
)
Meals and entertainment
    
76
      
15
  
Vested stock and club dues
    
3
      
16
  
Parking disallowance
    
20
      
17
  
Adjustment for prior years’ estimates to actual
    
35
      
(299
)
Income tax benefit
  
$
(996
)
  
$
(394
)
Effective tax rate
    
18.9
%
    
69.7
%


The primary difference between the effective tax rate and the federal statutory income tax rate for 2024 resulted from a permanent difference related to meals and entertainment.  Also contributing to differences between the effective tax rate and the federal statutory income tax rate was the adjustment for prior years’ estimates to actual that are generally updated at the completion of the third quarter of each fiscal year and were $35 in the year ended December 31, 2024. Another contributing factor to the differences between the effective tax rate and the federal statutory income tax rate was a permanent difference related to dividends-received deduction (“DRD”). The current estimated DRD is adjusted as underlying factors change and can vary from estimates based on, but not limited to, actual distributions from investments as well as the amount of the Company’s taxable income.



The primary difference between the effective tax rate and the federal statutory income tax rate for 2023 resulted from the adjustment for prior years’ estimates to actual of $299 in the year ended December 31, 2023, which included the return to provision adjustment that is generally updated at the completion of the third quarter of each fiscal year and an adjustment for partnership valuation. Also contributing to the differences between the effective tax rate and the federal statutory income tax rate was a permanent difference related to meals and entertainment.



Deferred tax assets and liabilities at December 31, 2024 and 2023 were comprised of the following:

   
2024
    
2023
  
Deferred tax assets:
            
Deferred acquisition costs
  
$
9,508
    
$
8,808
  
Net unrealized investment losses
     4,350       3,342  
Insurance reserves
    
3,139
      
2,898
  
Impaired assets
    
791
      
791
  
Bad debts and other
    
482
      
337
  
Net operating loss
     1,940       559  
Total deferred tax assets
    
20,210
      
16,735
  
Deferred tax liabilities:
                
Deferred and uncollected premiums
  
$
(2,092
)

(1,053
)
Total deferred tax liabilities
    
(2,092
)
    
(1,053
)
Net deferred tax asset
  
$
18,118
    
$
15,682
  


The components of income tax benefit were:

   
2024
    
2023
  
Current – Federal
  
$
751
    
$
2,727
  
Deferred – Federal
    
(1,747
)
    
(3,121
)
Total
  
$
(996
)
  
$
(394
)


The Company has formal tax-sharing agreements, and files a consolidated income tax return, with its subsidiaries. Tax years 2021, 2022 and 2023 are considered open tax years that remain subject to examination by the Internal Revenue Service.

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

Other Available Disclosures

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