Jan 9th 2014
For most of us, it might not be so unusual to double our tax bills in one year. That is, unless last year’s tax bill was a billion dollars. In 2012 when Facebook founder Mark Zuckerberg’s tax liability was over a billion dollars, people took notice. But without breaking a sweat, he paid it. For 2013, it is estimated he will owe about double… roughly $2.3 billion. When he goes to write that check, he might get a hand cramp from all those zeroes, but other than that, he doesn’t seem to be losing any sleep.
What’s up with that?
Zuckerberg is a man with a plan. Forbes Magazine calls him a visionary. When word of his billion dollar 2012 tax bill hit, it was shocking to most of us. But it came as no surprise to him. After all, his income for 2012 was about $13 billion. That included $2.3 billion from stock options. The IRS views stock options as income just like wages, and taxes the money at ordinary income tax rates. In 2012, the top fed rate was 35% and the top California rate was a painful 13.3%.
Going back, on the day of Facebook’s initial public offering Zuckerberg bought 60 million shares for 6 cents each. In anticipation of his enormous tax bill, along with other tax strategies, he sold 30.2 million shares netting $1.135 billion. Voila, the tax bill was covered.
That was last year. For 2013, California’s rate hasn’t changed, but the top fed rate is now 39.6%. Zuckerberg’s estimated liability of $2.3 billion, once again is mostly from exercising his option to buy 60 million shares of Facebook Class B common stock.
Zuckerberg is one of those famous wealthy people who has gone on record saying he’s okay with paying more taxes, so although he does strategize, he seems okay with it. According to company filings, he plans to sell 41.4 million of his Facebook shares, worth $2.3 billion. Combined with substantial charitable deductions and trust structures, he’s got the tab covered.
Will this sell off cause him to lose control of the company? Nope. Forbes reports that he currently owns 58.8% and after the sale, will still own 56.6% (444 million shares). Also, he may still have options to exercise in the future.
So how does he stack up to other wealthy individuals?
According to IRS data from 2009, the top 400 tax returns put together totaled a tax liability of about $16 billion, or an average of $40 million each. Zuckerberg alone will pay more than 50 times the average for 2013. That ought to be enough to satisfy the fiercest detractor, but it isn’t.
Senator Carl Levin (D-Michigan) and others point out that, sure Zuckerberg paid through the nose, but Facebook gets to deduct the amount paid to Zuckerberg as compensation, thus reducing the company’s tax bill to virtually nothing. “Due to the stock option loophole, Facebook may not pay any corporate income taxes on its profits for a generation.”
Levin is hoping to change that law which he says allows for unfair deductions.
As for Zuckerberg, his current net worth is close to $25 billion, says Bloomberg’s Billionaire Index (measured on January 3, 2014). While his tax bill sounds staggering, he won’t need to clip coupons anytime soon. Critics can say what they will, but while the stock market is soaring and Zuckerberg’s income is ticking upward, Sacramento and Washington DC seem content to cheer the young visionary on to higher and higher tax tabs.