According to Bloomberg Businessweek, Facebook reported earning $1.1 billion in profit throughout 2012, but after some nifty accounting, it will not be paying a cent in either state or federal taxes. Instead, the federal government will provide Facebook with a $429 million tax refund. How does that work exactly?
Thanks to creative use of a tax deductibility on stock options, the government will be paying Facebook just shy of half a million as a refund on taxes paid in 2010 and 2011.
Using stock option tax breaks, Facebook was able to give its executives the ability to purchase stock at dirt-cheap prices. And when the executives use those options, the company can write off the difference in prices as a loss and deduct it from corporate taxes for the year, according to Citizens For Tax Justice, which predicted Facebook would make a move like this.
According to CTJ, this won’t be the last time Facebook embraces stock option tax breaks to avoid paying taxes.
“Facebook is also carrying forward another $2.17 billion in additional tax-option tax breaks for use in future years,” CTJ writes on a multi-page report about the latest tax findings.
So essentially, over the next several years, Facebook stands to pay absolutely zero California or federal taxes, all while using stock options from its IPO to receive a total of $3.2 billion in tax refunds from the government.
While all of this seems crazy, it’s important to note that Facebook isn’t the only company that makes use of these stock option tax breaks. A 2011 CTJ report states that 280 Fortune 500 companies use similar methods to shield or entirely write off their tax payments.