Facebook founder and CEO Mark Zuckerberg will have to write a check for about $1 billion when he files his 2012 tax return.
The huge bill owed to the IRS and the state of California stems from Facebook going public last May during which Zuckerberg ,28, increased his ownership stake in the social media company. “On the day of Facebook’s initial public offering, Zuckerberg exercised a stock option and purchased 60 million Facebook shares at a “strike price” of 6 cents each.” The IRS treats those shares as ordinary income (regardless of whether they are are sold).
Zuckerberg’s overall tax rate is about 50 percent when all is said and done. While his tax return is confidential, estimates are that the amount he will have to pony up in taxes is about $1 billion. “For Zuckerberg, that means reporting income last year of nearly $2.3 billion from his stock options alone. Add together the top 2012 federal tax rate of 35% and the top California rate of 13.3% — the highest in the nation — and you get a total tax rate of 48.3%.”
During the Facebook IPO, Zuckerberg also sold off 30 million Facebook shares and will use the proceeds to pay his tax bill. This raises the question about why not just buy 30 million shares instead of 60? Celebritynetworth.com offers this explanation:
“The reason lies with the types of shares that Mark was buying. Facebook has two “classes” of shares, Class A and Class B. Every Class B share has 10 times the voting power of a Class A share. In essence, Mark traded 30 million votes for for the right to have 600 million votes. These new shares have given Mark 58% of the voting rights at Facebook, guaranteeing that he will always be in charge.”
In December, Zuckerberg and his wife donated 18 million Facebook shares (worth about $500 million) to the Silicon Valley Community Foundation which could lessen the tax bite.
As one news agency quipped, “It may be time for Facebook CEO Mark Zuckerberg to ‘unfriend’ Uncle Sam.” That being said, given the magnitude of the tax liability, do you think Mark Zuckerberg would ever consider giving up his US citizenship and move to Singapore like Facebook co-founder Eduardo Saverin?