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Facebook Founder May Face $1 Billion Tax Bill

Stock options exercised during its IPO are treated as income


mark zuckerberg facebook 630When Facebook (NASDAQ:FB) went public last year, its founder became a billionaire. Now the Internal Revenue Service wants its cut of his fortune.

Mark Zuckerberg is facing a tax bill of about $1.1 billion for 2012. While Zuckerberg’s $13 billion fortune is mostly tied up in Facebook shares, his tax bill is so high because he exercised options to purchase an additional 60 million shares during the social media giant’s IPO for just 6 cents a share, CNN Money notes.

Facebook’s Zuckerberg Ranked Top CEO
Facebook’s Zuckerberg Ranked Top CEO

The IRS classes the exercise of options as compensation. So, just by exercising those options, Zuckerberg must report $2.3 billion in income, even if he didn’t realize actual value by selling the shares.

In addition to federal taxes of 35%, Zuckerberg will have to pay another 13.3% in taxes to his home state of California. That boosts his total tax bill to almost 50% of his annual income, minus deductions.

Last year probably won’t be the only big tax bill for Zuckerberg. He still has options on another 60 million shares. If he exercises those before they expire in 2015, he would have to report $1.6 billion in taxable income.

Earlier this month, the Securities and Exchange Commission approved a $62 million settlement of claims against Nasdaq (NASDAQ:NDAQ) by four financial firms over technical glitches during Facebook’s IPO.

Article printed from InvestorPlace Media,

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