Facebook Will Pay No Taxes, Get Huge Refund Instead

From what I understand of stock options, in order to do their stock options in this way, the people receiving the options get taxed on the entire income at regular income tax rates instead of capital gains rates. As a result, they pay higher taxes and also pay SS, Medicare/etc taxes on it.

I don't know what Facebook gets to deduct - whether it's the value of the entire option, or just the difference between market value and exercise value - I'm pretty sure it's the latter, so whether the government comes out net better or worse would likely depend on what the exercise values were.

It's weird, but there's actually some logic to this - it's essentially Facebook paying its employees with shares instead of raising that money by selling it's shares. If I get a stock option that nets me $50,000 in profits, that's $50,000 in profits that Facebook lost by not being able to sell those shares in their IPO. I then have to pay taxes on that $50,000 as wages.

 

Gotta love the tax code. Public treasury will refund a corporation so then it can pay dividends to private citizens later.

 

Just another checkmark to hat facebok

 

Out of curiosity, do you believe the following two events should be treated equally for tax purposes?

A: Company pays employee $1000 in wages
B. Company pays employee $1000 in stock options instead of selling $1000 in stock and paying that to the employee

If yes, that is what happened. If not, what do you think should be done differently?

 

I guess people will start complaining that companies get to deduct wages, because that is basically what happened.

 

that clears a LOT up - thank you Major. - Repped

 

no taxes at all on employers

 

You are free to move to Somalia.

 

How about just no employers -- in other words, I'm okay with no taxes on employers if that means the government stops protecting private property.

 

Would B result in lower taxes via the 15% cap gains rather than whatever the income tax is? Just curious.

 

money money money money

MONEY

 

No - under the system Facebook used, the employees pay taxes on wages rather than Cap Gains (including paying FICA taxes).

The current system is correct. If it was done any other way, it would create a loophole to reduce the total tax burden. The article was written by someone who didn't bother to do any research on what they were talking about.

 

More like an agenda. Spread the propaganda.

 

I get the point you're trying to make, but that would be hugely impractical.

Eliminate corporate taxes, and I'm betting this happens overnight:
1. Vast majority of people quit their jobs.
2. Incorporate a company employing only themselves.
3. Hire themselves out to their former companies as a "consultant."
4. Pay themselves a nominal salary (if any at all), and retain the remainder of their "profits" within the company for "business" purposes.

I guess you're advocating eliminating personal income tax as well?

 

You can't claim a nominal salary and pass the smell test. The IRS would say you all your earnings are due to you being an employee, not due to your equity in the business. No different than today if you own say a consulting business. You don't pay tax at the corporate level - all the profits flow down to you and you pay income tax. However, the feds don't want you to use that to skip out on ss/medicare, so they charge you self employment tax - which is why some owners try to claim most of the income as business income and only a bit as salary. But if you're a doctor and you claim your practice pays you $10k in salary and the rest of the practice income is profits, you'll get socked hard by the IRS.

I personally believe they shouldn't do corporate income taxes - just raise capital gains and dividend taxes accordingly. Basically simplify the whole process so that corporations can't be favored or play with loopholes, etc......basically tax the owners of the company (i.e, the shareholders) instead of the entity....

 

Yes, the FB employees get hit with taxes on their stock cashout. Let's not forget about the thousands of jobs in 'Murica that FB created as well.

 

Not exactly on topic but I got a feeling that facebook will fall off within the next 5-10 years

 

They sure as hell can get away with it if corporate taxes are abolished and a few million new "consulting" firms spring up overnight. The IRS doesn't have the resources to audit every single one of them.

The vast majority of small companies these days are organized as S-corps or LLCs by choice because income isn't taxed at the corporate level and is instead passed through to the shareholders/owners directly. Get rid of corporate taxes and I can guarantee that every single one of those S-corps and LLCs will become C-corps overnight in an effort to retain earnings within the corporations themselves.

Moreover, I'm not talking about folks paying themselves a $1 salary and getting away with it. I'm talking about people paying themselves just enough to cover all their bills and to keep the rest in their corresponding C-corp tax free. The IRS can't claim these people's lifestyles exceed their supposed income, nor can they bring the hammer down on a corporation simply for hoarding cash. It passes the smell test easily.

Bottom line is eliminating corporate tax outright isn't nearly as straightforward as you would think.

EDIT: Just to clarify, I'm not saying there will undoubtedly be an explosion of self-incorporations. However, I'm pretty damn sure anyone who's already self-employed (and is accustomed to doing all the paperwork) will convert his/her S-corp into a C-corp. I'm also pretty sure a good percentage of employees will try to do something similar and hire themselves back to their former employers as consultants. My point is that eliminating corporate tax creates a loophole...and there will be many willing to take advantage.