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The Facebook IPO & The Zuckerberg tax!

We have had discussions about the Buffet tax. Now comes the Zuckerberg tax! With the Facebook IPO looming large and the quantifying of Mark Zuckerberg’s wealth there has been a lot of discussions on his tax liability. What is sure is that he will pay taxes of about $2 billion on only the portion of stock that he exercises which is around $5 billion. This seems like a large tax bill at 30% of income! However, it may be the only tax that he every pays on possibly $50 or $100 billion of wealth – not bad tax planning with an effective rate of about 1-2%! This is because of our tax system which taxes Individuals only when they actually sell property and realize their gains! So if Zuckerberg never sells his shares but only borrows against it, he will never pay any additional taxes.

This seems unfair to many folks but is perfectly legitimate under the current tax system. Also legitimate is the fact that investors pay lower taxes which is what prompted Obama to suggest the “Buffet tax”! Will we see the request for a Zuckerberg tax – one that requires individuals to pay taxes on market value of assets? Probably never because of the Pandora’s box that could be opened up with the challenges of deciding what is the market value of an asset!

While the Buffet tax or the Zuckerberg tax may never get passed into law, the accounting tutoring team will be happy to help you understand these tax rule recommendations if you desire so.