v3.26.1
Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes

10. Income Taxes

At December 31, 2025, the Company had current income tax receivable of $128,000 included in other assets in the consolidated balance sheets. At December 31, 2024, the Company had current income tax receivable of $130,000 included in other assets in the consolidated balance sheets.

The income tax expense (benefit) from continuing operations is comprised of the following (dollars in thousands):

 

 

 

Year Ended December 31,

 

 

 

2025

 

 

2024

 

Current state tax expense (benefit)

 

$

151

 

 

$

(1,844

)

Current federal tax expense (benefit)

 

 

(10

)

 

 

4

 

Deferred tax expense (benefit)

 

 

—

 

 

 

—

 

Total income tax expense (benefit)

 

$

141

 

 

$

(1,840

)

 

The following is a reconciliation of the statutory federal income tax rate from continuing operations to the Company's effective tax rate from continuing operations for the tax years ended December 31, 2025 and 2024 (dollars in thousands):

 

 

 

Year Ended December 31,

 

 

 

2025

 

 

2024

 

Income (loss) before income taxes

 

$

(18,297

)

 

 

 

 

$

(36,080

)

 

 

 

Statutory U.S. federal income tax rate

 

 

(3,842

)

 

 

21.0

%

 

 

(7,577

)

 

 

21.0

%

State income taxes, net of federal benefit

 

 

(260

)

 

 

1.4

%

 

 

2,753

 

 

 

-7.6

%

Tax‑exempt investment income and dividend received deduction

 

 

(3

)

 

 

0.0

%

 

 

(9

)

 

 

0.0

%

Nondeductible meals and entertainment

 

 

5

 

 

 

0.0

%

 

 

43

 

 

 

-0.1

%

Change in valuation allowance on deferred tax assets

 

 

4,420

 

 

 

-24.2

%

 

 

2,708

 

 

 

-7.5

%

Other

 

 

(179

)

 

 

1.0

%

 

 

242

 

 

 

-0.7

%

Income tax expense (benefit)

 

$

141

 

 

 

-0.8

%

 

$

(1,840

)

 

 

5.1

%

The Company had a state income tax benefit, net of federal benefit of $260,000 for the year ended December 31, 2025. A majority of this amount was related to an increase in state net operating losses in the state of Michigan during 2025.

The Company had state income tax expense, net of federal benefit of $2.8 million for the year ended December 31, 2024. A majority of this amount was related to the Company utilizing its state net operating loss carryforwards related to the state of Michigan during 2024.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (dollars in thousands):

 

 

2025

 

 

2024

 

Deferred tax assets:

 

 

 

 

 

 

Discounted unpaid losses and loss adjustment expenses

 

$

1,487

 

 

$

1,774

 

Unearned premiums

 

 

596

 

 

 

1,079

 

Net operating loss carryforwards

 

 

16,794

 

 

 

13,647

 

Net unrealized losses on investments

 

 

1,756

 

 

 

2,603

 

State net operating loss carryforwards

 

 

4,213

 

 

 

3,890

 

Other

 

 

80

 

 

 

218

 

Gross deferred tax assets

 

 

24,926

 

 

 

23,211

 

Less valuation allowance

 

 

(22,905

)

 

 

(19,747

)

Total deferred tax assets, net of allowance

 

 

2,021

 

 

 

3,464

 

Deferred tax liabilities:

 

 

 

 

 

 

Investment basis difference

 

 

546

 

 

 

348

 

Tax rate change transition discounting

 

 

—

 

 

 

45

 

Deferred policy acquisition costs

 

 

135

 

 

 

909

 

Installment sale gain

 

 

1,061

 

 

 

1,816

 

Deferred intercompany gain

 

 

141

 

 

 

141

 

Intangible assets

 

 

115

 

 

 

115

 

Other

 

 

23

 

 

 

90

 

Total deferred tax liabilities

 

 

2,021

 

 

 

3,464

 

Net deferred tax liability

 

$

—

 

 

$

—

 

As of December 31, 2025, the Company has net operating loss carryforwards for federal income tax purposes of $80.0 million, of which $68.6 million expire in tax years 2030 through 2045 and $11.4 million never expire. Of this amount, $8.0 million are limited in the amount that can be utilized in any one year and may expire before they are realized under Section 382 of the Internal Revenue Code. The Company has state net operating loss carryforwards of $89.4 million, which expire in tax years 2034 through 2045.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets under the guidance of ASC 740. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three‑year period ended December 31, 2025. Such objective evidence limits the Company's ability to consider other subjective evidence, such as management's projections for future growth.

Based on its evaluation, the Company has recorded a valuation allowance of $22.9 million and $19.7 million at December 31, 2025 and 2024, respectively, to reduce the deferred tax assets to an amount that is more likely than not to be realized based on the provisions in ASC 740. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or if objective negative evidence in the form of cumulative losses is no longer present, and additional weight may be given to subjective evidence, such as the Company’s projections for growth.

The following table presents the amount of income taxes paid by the Company for the years ended December 31, 2025 and 2024 (dollars in thousands):

 

 

December 31,

 

 

 

2025

 

 

2024

 

Income taxes paid:

 

 

 

 

 

 

State:

 

 

 

 

 

 

California

 

$

60

 

 

$

—

 

Texas

 

 

12

 

 

 

 

All Other States

 

 

71

 

 

 

1

 

Total State

 

 

143

 

 

 

1

 

Total federal

 

 

—

 

 

 

—

 

Total income taxes paid

 

$

143

 

 

$

1

 

The Company files consolidated federal income tax returns. For the years before 2022, the Company is no longer subject to U.S. federal examinations; however, the Internal Revenue Service has the ability to review years prior to 2022 to the extent the Company utilized tax attributes carried forward from those prior years. The statute of limitations on state filings is generally three to four years.