Facebook Doesn’t Have to Pay Taxes

Wouldn’t it be nice if you had no taxes to pay, and the same year, received a nearly $430 million tax return on top of $1.1 billion in annual revenue? That would be more than nice, and is currently Facebook’s fortunate situation.

This shocking revelation ultimately begs the question of “Who is responsible for this oversight?”  Is this just another example of a mega-billion dollar corporation finding tax loopholes to take advantage of the book’s fortunate situation due to the tax deductibility of its executive stock options. According to the group Citizens for Tax Justice, last year many of Facebook’s employees cashed in their stock options. The money received by the employees for cashing in is considered the same as wages by the U.S. government. Which in turn, grants Facebook some very generous tax deductions for each of the stock options that were cashed in.

Facebook is not the first major corporation to use this tax break to its advantage and is just one of many major businesses that are accused of not paying their share of taxes. But Facebook and other corporations can legitimately deduct stock options given to their executives. Many companies whose employees benefit from stock options receive monstrous deductions. There were 26 companies including corporate giants like General Electric, Verizon and Boeing, with total combined profits of $205 billion, that paid zero federal income tax between the years of 2008 and 2011. This stock option loophole will likely prevent Facebook from paying in billions of  dollars in taxes and even allow them to ride for years on these deductions without ever paying in.

Although Facebook isn’t really paying Federal taxes in 2012, it is just remitting the tax on behalf of the employees.This lack of taxation for last fiscal year comes from the fact that restricted stock units are a form of equity compensation. So, in other words, instead of giving the employees stock as incentives, Facebook made a contractual promise to give them shares later, after the I.P.O. settling the limited stock units by withholding the quantity of tax due at an estimated mutual federal and state tax rate of 45 percent.

Regardless of the fact that Facebook’s hefty deductions are legit, average taxpayers may find this news unfair. How do you feel about the tax deductions for executive stock options?

[Image via bostonherald]