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Zuckerberg's 2012 tax bill: $2 billion?

Facebook's IPO indicates its founder will pay a hefty tax bill for exercising stock options. That income is taxed at the 35% rate, since entrepreneurs don't get the same treatment as investors.

By MSN Money Partner Feb 14, 2012 11:14AM

This post is by Robert Frank of The Wall Street Journal.

 

Buried in the registration statement of Facebook's IPO was this startling line:

 

"We expect that substantially all of the net proceeds Mr. Zuckerberg will receive upon such sale will be used to satisfy taxes that he will incur upon his exercise of an outstanding stock option to purchase 120 million shares of our Class B common stock."

 

What that means, in dollar terms, is that Facebook founder Mark Zuckerberg may face a tax bill this year of more than $2 billion. The Financial Times puts the figure at $1.5 billion. But if the IPO values the company at the hoped-for $100 billion, his bill could be higher.

 

Facebook declined comment. But here’s the math. Zuckerberg received the 120 million options in 2005, presumably for being CEO and being, well, Mark Zuckerberg. Those options will be treated as ordinary income, which means he would pay the top federal income tax rate of 35%.

 

The cost basis for those options is 6 cents a share. So if the company is valued at $100 billion, and the shares are valued at around $50 each, his gain from the sale would be up to $6 billion. Taxed at 35%, the tax bill would be more than $2 billion. The FT puts a more conservative value on the company for its $1.5 billion total. (Post continues below video.)

What’s more, Zuckerberg would have to pay an additional 10.3% for California state taxes, though he would likely be able to deduct those taxes from his federal bill.

 

It's unclear whether the $2 billion would make him America's biggest taxpayer, since the IRS doesn’t disclose such things. But given that the 400 top earners in the United States paid an average of $48 million each in taxes, chances are he'll be at least one of the biggest taxpayers in 2012 or 2013.

 

Zuckerberg's tax bill will also provide an important counterpoint to the notion that the rich pay lower tax rates than the rest of America. That may be true for professional investors and private-equity chiefs, but not for dot-commers and many entrepreneurs.

 

More from The Wall Street Journal and MSN Money:

 

 

VIDEO ON MSN MONEY

41Comments
Feb 14, 2012 2:38PM
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I really don't care that mr. Zukerberg has to pay 2b in taxes. He can afford a good tax guy so I don't expect him to pay that much...I don't care Warren Buffet pays only 18% tax. They are using the system for their own advantage. They aren't cheating anyone. they just pay the taxes they owe under the law. What bothers me is that my wife and I make about 160K a year. we don't owe any money but on our house. which is only about 1/2 of its worth. Put three kids through college with very little money from anyone. All kids got Academic Scholarships. covered about 1/2 of the cost of their education. I just got a Promotion and a nice pay raise. My wife and I will make about 180K next year. I don't have a bunch of Retirement savings....I find out now I will not be able to put in a Roth IRA next year. but the OCCUPY crowd thinks I am one of the high earners and should pay the bill for them to go out and protest me and the people who work. when most of the people don't pay anything for the running of this country....we are truely lost. I think everyone should pay something...even if it is only $1 to the federal govt. 
Feb 14, 2012 2:39PM
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HMMMMM,   Two billion in taxes from Mark Zuckerberg going to the worlds largest charity...... The United States Government.  The sad part about that...... they will NOT be able to account for a single penny of it!!!!!  This shows how broke the system has become.  Just remember this at election time and vote all the idiots out of office.  Give someone else a chance to straighten things out as the current residents of the Congress and White House cannot put the country's well being ahead of their own personal interests! 
Feb 14, 2012 2:18PM
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Usual Suspects---- You think Bill Gates holds a seminar on how to avoid taxes?

 I love these discussions because it always comes down to some sorry A**, jealous slacker saying "he still has plenty", meanwhile they pay less than 8% in taxes. Stop being jealous and looking to get out of helping this country by wishing  bad on the rich. We (entrepreneurs) take all the risk, work ungodly hours, take almost no days off, sacrifice to pay the bills, meet payroll etc only to be loathed by simple minded robots who are afraid to try and make it themselves. Risk is punished when it fails, it shouldnt be punished when it succeeds also. We dont have to fear China taking over. We have to worry about the majority of this country who seem like they want to join them. The rich who pay less than 15% in taxes dont use any special tricks, they invested the money they earned (usually in this country in the form of municipal bonds that are tax free) you can do the same thing. Take the $10.00 a day you spend on coffee or manicures and invest it. Rich people dont pay 15% on INCOME tax you morons, they pay 35%, it is their investments (risks) that they pay less tax on. If they have 100,000,000 million to invest that means they probably earned 500,000,000 to get to that point and paid 175,000,000 in INCOME taxes already. When is enough enough?

Feb 14, 2012 1:01PM
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Oh, but the rich don't pay their fair share, do they? Yeah, I'm sure a lot of us would like to have this "problem," but I believe most of you would have a different view on the "fairness" of taxes if you really started making big bucks.
Feb 14, 2012 4:19PM
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This is funny...I just love how 95% of the people in this country hate the fact that there are those who are talented, and get up in the morning and go out and chase their dreams.  They go out and work harder than most and then the general population claims they don't deserve to make any profit from their errorts.

The Wealthy don't have side avenues to go down to avoid taxes, Yes, they give to charity because they HAVE the ability to do so.

It is time to stop complaining, calling headaches disabilities, and camping out in parks spreading germs and disease and go find something to DO! Work is everywhere, may not be what you want to do but there is always something that needs to be done.

Feb 14, 2012 2:26PM
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Yes, and then that $2,000,000,000 can help pay for those food stamps and other government benefits that the wealthy are not paying their "fair share" of.......
Feb 14, 2012 5:29PM
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I wish i had a 2 BILLION dollar tax bill!!!

why?

 

CUZ IT MEANS I'M FILTHY FREAKIN RICH...THAT'S WHY.

Feb 14, 2012 2:39PM
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Hey Obama, would this be his fair share??  You moron!!

Feb 14, 2012 5:29PM
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I'd be happy to pay 35% on 6 billion, sign me up!!!
Feb 14, 2012 1:44PM
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I think the CA math is a little off.  If I'm not mistaken, the income above $1M is taxed at an additional 1% rate so it would be 11.3% instead of 10.3% on all but the first $1M.

 

Welcome to CA!

Feb 14, 2012 6:27PM
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Need to clarify a few things

 

Usual Suspects--- You think the world 2nd wealthiest man holds seminars on how to avoid taxes and you think I have problems with reality?

 

Phil 99-- I didnt whine, I was pointing out that we dont have wealth handed to us, we work for it, take chances and invest in ourselves so we deserve the rewards, we dont deserve to be punished for success.

 

Daniel Lopez--- The reason people stick up for the 1% is because the class warfare that is trying to be waged isnt just on the 1 % its actually on the top 25%, you know the percentage that pays 75% of the bills. I get involved because the rational of "hey he still has more than me after he pays his taxes" is based on jealousy and envy and not fairness. If he paid 99% tax he would still have 60,000,000 left and be richer than you, should that be the tax rate for the wealthy? If you think so go look at the 60's, 70's and early 80's when tax rates for the wealthy werre in the 70% range and the country was in shambles. Intrest rates were 14 percent on mortgages, car dealerships closed up by the hundreds because nobody could afford 19 % car loans.

 

 

 

Feb 14, 2012 5:38PM
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This'll be the last time he pays anywhere near 35%. That $4 billion net will go into investments and hedge funds and the guy will be set paying 15% for life.

Feb 14, 2012 4:46PM
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Actually, Z will only be transferring wealth gained by exercising options - money comes from where? Investors willing to purchase shares from him?
Feb 14, 2012 12:17PM
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Meaning he'll only have $4 billion left over? Hardly worth getting out of bed in the morning for.
Feb 14, 2012 5:18PM
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It doesnt really matter. Mark Z got uber rich, uber fast. that meeting he had with Obama a little while ago doesnt mean much either. Z knows all too well that, he has to make sure he is on the side with america. Therefore he will pay what ever tax bill he gets. All horse#&*$. Next time, I can assure you Z will not be paying high taxes. Look at it this way, ahhh why bother. Ha Ha 

Feb 14, 2012 3:22PM
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The price you pay to play the game...capitalism! But, as long as he has people like you upset about HIS money he'll be alright!
Feb 14, 2012 6:16PM
Feb 14, 2012 3:34PM
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wake up now--- he was there to pitch the product and they asked about Whitney, should we stop all business because another junkie took it to far? CNBC is a busines network, not a news network that asks about emotions. Why do you think he was there and what should he have done? She did kill herself, or do you think someone forced her to do drugs?
Feb 14, 2012 6:53PM
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Dear REapraysr:  That remark is such a over-simplification.​  The problem is investors don't pay the same as entrepreneurs.  Why does Romney pay around 14% while others are taxed at 35%. I just finished my taxes at the effective rate of 15.1%.  I'm a teacher (not exactly making a fortune) paying a higher rate than a multimillionaire, that by the way must still explain his offshore accounts.  Enough of the idiotic, non-thinking  nonsense already.
Feb 14, 2012 4:01PM
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Poor phil99.  That life sounds so unlike anything the poor face.  Actually, it sounds just like my life for about 25 years, and I was middle class.
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