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The Loophole That Allows Facebook to Avoid Paying Taxes on Billions of Earnings
Most Americans assume that Silicon Valley, a shining beacon of US economic growth, will give a lot of dough back to Uncle Sam over the next few years. But thanks to a controversial loophole in US tax code, 12 tech companies—including Facebook, Twitter and Linkedin—are poised to avoid paying income taxes on their next $11.4 billion in earnings, netting the companies a collective savings of $4 billion, according to a report put out this week by the Citizens for Tax Justice (CTJ).
The way the law stands now, US companies get big tax deductions when they pay their employees in stock options. For example, if an executive is given the option to buy a million shares of a company at five cents a share and later cashes those options in when they're selling for $20 a share, the company can deduct the price difference in tax breaks, even though they never actually paid that higher salary. This is especially profitable to emerging industries, like tech, where companies give stock options to young executives when they're still coding out of their parents' basements. These tech employees have an incentive to stay with the company over the long-term, and then cash in once the company is profitable. That means that companies get to store these tax breaks until—ta-da!—they're not paying income taxes for years. Here's how much these 12 companies have saved:
Twitter is the latest company that stands to profit from this, since it just went public. But in this latest report, CTJ determined that Facebook still has the highest amount of stock deductions to cash in—about $6.2 billion worth, allowing it to avoid income taxes for almost five years. And it's not just tech companies. In April, CTJ found that 280 Fortune 500 companies have benefited from this break in the last three years alone.
The way the law stands now, US companies get big tax deductions when they pay their employees in stock options. For example, if an executive is given the option to buy a million shares of a company at five cents a share and later cashes those options in when they're selling for $20 a share, the company can deduct the price difference in tax breaks, even though they never actually paid that higher salary. This is especially profitable to emerging industries, like tech, where companies give stock options to young executives when they're still coding out of their parents' basements. These tech employees have an incentive to stay with the company over the long-term, and then cash in once the company is profitable. That means that companies get to store these tax breaks until—ta-da!—they're not paying income taxes for years. Here's how much these 12 companies have saved:
Twitter is the latest company that stands to profit from this, since it just went public. But in this latest report, CTJ determined that Facebook still has the highest amount of stock deductions to cash in—about $6.2 billion worth, allowing it to avoid income taxes for almost five years. And it's not just tech companies. In April, CTJ found that 280 Fortune 500 companies have benefited from this break in the last three years alone.
THE REST:
http://www.motherjones.com/mojo/2013/11/report-facebook-twitter-taxes
(My comment: This is yet another corporate tax loophole that needs to be SLAMMED SHUT and the ensuing revenues used to pay back the Social Security trust fund - out of which the gov't stole our money for wars, etc. and which they now don't want to pay back, insisting benefits must be cut, instead)