DONEGAL GROUP INCDGICA

DONEGAL GROUP INC Income Taxes Disclosure

10-KFiled Mar 6, 20263 min read
11 - Income Taxes

Our provision for income tax expense for 2025, 2024 and 2023 consisted of the following:
 
 
  
2025
    
2024
    
2023
  
Current income tax expense:
                  
U.S. federal
  
$
17,813,302
    
$
11,708,424
    
$
158,575
  
State
    
250,000
      
250,000
      
250,000
  
Deferred income tax expense (benefit):
                        
U.S. federal
    
188,935
    
$
(481,744
)
  
$
229,397
  
Total income tax expense included in the consolidated statements of income
  
$
18,252,237
    
$
11,476,680
    
$
637,972
  

The state income tax expense category was comprised of state taxes in Delaware.

Our effective tax rate is different from the amount computed at the U.S. federal statutory rate of 21%. The reasons for such difference and the related tax effects are as follows:
 
 
  
2025
          
2024
          
2023
        
Income before income tax expense
  
$
97,592,977
          
$
62,338,932
          
$
5,063,476
        
Tax at U.S. federal statutory rate
    
20,494,525
      
21.0
%
    
13,091,176
      
21.0
%
    
1,063,330
      
21.0
%
State income taxes, net of federal income tax effect
    
250,000
      
0.3
      
250,000
      
0.4
      
250,000
      
4.9
  
Nontaxable or nondeductible items:
                                                
Tax-exempt interest
    
(1,506,919
)
    
(1.5
)
    
(1,260,114
)
    
(2.0
)
    
(1,328,312
)
    
(26.2
)
Proration
    
392,676
      
0.4
      
329,468
      
0.5
      
351,415
      
6.9
  
Dividends received deduction
    
(63,786
)
    
(0.1
)
    
(57,759
)
    
(0.1
)
    
(77,348
)
    
(1.5
)
Stock options
    
(895,639
)
    
(0.9
)
    
101,600
      
0.2
      
595,602
      
11.8
  
Fixed-maturity dispositions
    
—
      
—
      
(585,845
)
    
(0.9
)
    
—
      
—
  
Other adjustments:
                                                
Unrealized gain on equity securities
    
(1,060,494
)
    
(1.1
)
    
(1,054,875
)
    
(1.7
)
    
(572,213
)
    
(11.3
)
Additional tax paid for prior year
    
179,457
      
0.2
      
(5,157
)
    
(0.1
)
    
159,261
      
3.1
  
Other, net
    
462,417
      
0.4
      
668,186
      
1.1
      
196,237
      
3.9
  
Income tax expense
  
$
18,252,237
      
18.7
%
  
$
11,476,680
      
18.4
%
  
$
637,972
      
12.6
%

Income taxes paid were as follows:
 
 
  
2025
    
2024
    
2023
  
U.S. federal
  
$
22,447,439
    
$
3,500,000
    
$
—
  
State
    
250,050
      
250,050
      
250,050
  
Total
  
$
22,697,489
    
$
3,750,050
    
$
250,050
  
The tax effects of temporary differences that give rise to significant portions of our deferred tax assets and deferred tax liabilities at December 31, 2025 and 2024 are as follows:
 
   
2025
    
2024
  
Deferred tax assets:
            
Unearned premium
  
$
17,690,466
    
$
18,377,475
  
Loss reserves
    
11,054,832
      
10,579,697
  
Net unrealized losses
    
2,205,197
      
7,498,822
  
Net state operating loss carryforward - DGI Parent
    
7,508,094
      
7,581,066
  
Other
    
850,843
      
1,035,322
  
Total gross deferred tax assets
    
39,309,432
      
45,072,382
  
Less valuation allowance
    
(7,508,094
)
    
(7,581,066
)
Net deferred tax assets
    
31,801,338
      
37,491,316
  
Deferred tax liabilities:
                
Deferred policy acquisition costs
    
14,420,695
      
15,402,863
  
Loss reserve transition adjustment
    
—
      
271,738
  
Other
    
4,093,342
      
3,046,854
  
Total gross deferred tax liabilities
    
18,514,037
      
18,721,455
  
Net deferred tax asset
  
$
13,287,301
    
$
18,769,861
  

We provide a valuation allowance when we believe it is more likely than not that we will not realize some portion of a deferred tax asset. At December 31, 2025 and 2024, we established a valuation allowance of $7.5 million and $7.6 million, respectively, for our net state operating loss carryforward. We determined that we were not required to establish a valuation allowance for the other net deferred tax assets of $31.8 million and $37.5 million at December 31, 2025 and 2024, respectively, since it is more likely than not that we will realize these deferred tax assets through reversals of existing temporary differences, future taxable income and our implementation of tax-planning strategies.

We are no longer subject to income tax examinations for tax years prior to 2016. In 2019, the Internal Revenue Service (“IRS”) began a federal income tax audit of our consolidated tax returns for tax years 2016 to 2018. No material issues have been raised and no adjustments have been proposed as a result of this ongoing audit.

On July 4, 2025, a budget reconciliation package referred to as the One Big Beautiful Bill Act of 2025 (the “OBBBA”) was enacted. The tax provisions included within the OBBBA did not have a material impact on our financial position, results of operations or cash flows.

Historical Timeline

Fiscal YearFiled
2025Mar 6, 2026Showing above
2024Mar 10, 2025
2023Mar 6, 2024
2022Mar 6, 2023
2021Mar 7, 2022
2020Mar 5, 2021
2019Mar 6, 2020
2018Mar 14, 2019
2017Mar 9, 2018
2016Mar 10, 2017
2015Mar 18, 2016

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.

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