Facebook (NASDAQ:FB) founder and Chief Executive Officer Mark Zuckerberg was handed a paper fortune worth $13 billion from the social network’s initial public offering last May and a 2012 tax bill that analysts have estimated comes close to $1.1 billion.
As the U.S. Internal Revenue Service and California’s state tax agency do not release the details of an individual’s tax returns, the figure is only an estimation, calculated by three California CPAs that CNNMoney consulted. But the publication believes that this large sum stems from a decision he made last May to increase his stake in Facebook. On May 18 — the day the social network went public — Zuckerberg exercised a stock option and bought 60 million shares in the company at a “strike price” of 6 cents each. The IRS treats those shares as ordinary income because that such options are seen as a form of compensation like regular wages.
Based on the accountants’ calculations, CNN determined that Zuckerberg must have earned nearly $2.3 billion from just his stock options last year, given that the top 2012 federal tax rate of 35 percent plus the top California tax rate of 13.3 percent amounts to a total tax rate of 48 percent.
However, the calculations did not factor in the chief executive’s deductions — like a $500 million charitable donation he made in December to the Silicon Valley Community Foundation…
Zuckerberg’s tax bill of more than $1 billion is unusual, even for billionaires, according to the publication. “With numbers that large, it’s usually capital gains, not ordinary income,” Toby Johnston, a partner at tax firm Moss Adams, whose Silicon Valley office who works with wealthy clients, told CNN. Investors generating profit from their financial activities paid a much lower tax rate last year than Zuckerberg will. The highest federal capital gains rate in 2012 was 15 percent, but that figure will increase to 23.8 percent — including a Medicare surtax — this year.
A Facebook spokeswoman declined to comment to CNN on Zuckerberg’s taxes, but it is clear that both the U.S. Treasury and the State of California got quite a boost from the Facebook founder and the company’s thousands of employees, many of whom cashed in on stock grants and options. According to an estimate from the state’s Legislative Analyst’s Office, California expects to collect approximately $1.5 billion in tax revenue related to Facebook’s IPO.
With 60 million unexercised options that expire in late 2015, Zuckerberg is likely facing several more years of elevated tax bills. At Facebook’s current share price — the stock closed Thursday at $27.07 — those options would generate taxable income of $1.6 billion if he cashed them in, and at the current tax rate that profit would result in a $826 million bill.
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