Once Facebook goes public the employees that were given stocks as part of their employment will most likely get smacked with a tax bill totaling 45% of the worth of their stocks! All due at once due to the new structure of how the stocks were issued pre-IPO. These employees are anything but 'wealthy' – windfall of money IF they sold out their shares and most likely well-paid for their jobs – but not wealthy. Looks like Facebook has put money aside to help the employees cover the taxes. Nice job FB!! 😉
Reshared post from +CNNMoney
Tax collectors will be taking a giant bite out of the paper millions that thousands of Facebook employees will soon gain. The average tax hit: $1.1 million per employee. http://cnnmon.ie/FBTaxBill
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Facebook employees face $4 billion tax bite
Facebook employees with rich equity stakes will face multi-million-dollar tax bills after Facebook's IPO — even if they don't sell a single share.
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Nice problem to have…
Looks like everybody that touches FB gets burned. Hmm….
It's happening to Twitter & Zinga as well. Read the article, apparently the new tech companies are structuring their shares this way. If you think about it, very few of startups will ever go IPO, so structuring the shares so it is beneficial before IPO is a good way to go.
The system is completely illogical.. Pay taxes on shares that they haven't even sold yet?
+Clare Cosgrove , you are getting something which is valued at a price and has to be taxed. That's how it works in every country I am familiar with (US, Ireland and Spain).
If the stock actually goes down later you can declare it as losses and deduct it from your taxes.
+Isaac Clerencia I suspect that the opportunity to declare a loss will be the case :-/
Agree on that Ron, the IPO might sell out quickly on buzz and excess institutional cash reserves, but the stock valuation they're aiming for would need ridiculous rates of revenue growth to make any sense. If these shares are really to be worth $30, Facebook is going to have to figure out how to double ad sales ASAP.
potentially similar situation to every businessman who has a paper-profit at the end of the year. You get hit with a tax bill, whether there is any money left in the bank or not, sometimes paying taxes on receivables not yet collected.
Why don't they sell now?
Because capital gains are capital gains. Typically when you are in the pre-IPO phase, you cannot sell even if you want to because of SEC regulations (it's not like employees typically have access to options anyways during this period).
The best strategy is to hold out after the initial public offering. Ride the stock up as high as you dare (or until your options mature), sell, put part of the money into tax shelters and investments and use the rest to pay your capital gains tax. It's only 15% so its not like you cannot cash out and still make a tidy profit on money that you didn't actually work for.
If you are really crazy you could put the money back into the company that you work for. But honestly unless you are really into playing the market you are better served putting you money into a nice low risk long term retirement investment fund so you can keep uncle sam's hands off of it. Because when the government has too much unaccounted for money they just run off and create wars and spend money on robots that kill things. **But I digress.**
Social media to date has been a poor investment due to the relatively quick turnover rates in the public's interest in any single social media technology. Facebook has lasted longer than Friendster, Tribe, Myspace [and Twitter} and a dozen other networks could have imagined. But people are fickle and some new shiny social network will arise and dethrone Facebook eventually.
For the record. Facebook makes some money from ads. But the fastest growing part of their revenue stream is coming from selling users information / demographics to private industry. Those privacy settings are only for user to user, they have no impact on the back end access to the data that Facebook sells. Access that costs the company I work for about $16,000 per month. That data is only valuable because Facebook is the largest demographics / social modelling player on the market right now and because people are so willing to give it up.
Thank you +Diesel Lucas this was great read.