Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

This Could Be the Year Bank of America Corp (BAC) Pays Income Tax: Citigroup Inc. (C)

It’s the time of year when spring is in the air, and the first quarter is about to close, giving us an idea of how the new year will be treating our favorite companies. As an added treat — with April 15 just around the corner — we also begin to hear whispers regarding what these entities paid in taxes in previous years.

For investors, this information is often less irksome than for Main Street at large, since a smaller tax bill should result in more capital to share with stockholders. This is not necessarily the case, of course, particularly with the banking sector — which has just begun to blossom again in the wake of the Great Recession.

Taking a look at income taxes paid by big banks clearly points up the fact that those that pay the most in federal taxes also have the most income. This can be seen clearly by taking a look at Bank of America Corp (NYSE:BAC).

Tax refunds?
Since the financial crisis of 2008, the tax burden has been non-existent for B of A and Citigroup Inc. (NYSE:C), neither of which has paid federal income tax since that year. Banks and other corporations enjoy tax benefits by holding money offshore and being able to deduct their own pay, which can pave the way for tax refunds. In the case of Citigroup Inc. (NYSE:C), this was because of special tax treatment for past losses, lobbied for by then-CEO Vikram Pandit. For Bank of America Corp (NYSE:BAC), it was because of its purchase of the ticking time bomb called Countrywide.

Debt is a bona-fide tax write-off, as are legal expenses. With approximately $45 billion in settlement costs under its belt since 2009, Bank of America Corp (NYSE:BAC) has shouldered a heavy load — and more suits are pending. The last quarter of 2012 entailed a lot of deck-clearing for the big guy, resulting in more losses against earnings, which came in at a mere $0.03 per share on an adjusted $20 billion in revenues, which fell by $6 billion in the year-ago quarter.

The fix: Increased earnings
Banks that make money pay taxes, evidenced by the tax bills of JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC). The former bank paid $7.6 billion in federal income taxes on pre-tax earnings of nearly $29 billion, and Wells forked over $9.1 billion in tax to Uncle Sam out of $28.5 billion in income.

The London Whale incident probably accounts for JPMorgan’s slightly lower tax bill, but both of these banks were very active in the mortgage-writing business, which boosted earnings considerably.

CEO Brian Moynihan has addressed Bank of America Corp (NYSE:BAC)’s need to increase earnings, particularly via mortgage lending, and is currently working on bolstering that metric. If he delivers, Bank of America may currently be on its way to finally being able to pay an income tax bill next year.

The article This Could Be the Year Bank of America Pays Income Tax originally appeared on and is written by Amanda Alix.

Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.