It’s not a tax scam. No one is doing anything illegal. In fact, they are just perfectly following the laws put in place by the ultra-lobbied politicians. Unfortunately, this is just one of the many reasons our country needs a swift kick in the …tax code.
It hasn’t drawn much attention, but Facebook’s first annual earnings report contains an accounting gem: a multibillion-dollar tax deduction for the cost of executive stock options and share awards.
Even though Facebook (FB) reported $1.1 billion in pre-tax profits from U.S. operations in 2012, it will probably pay zero federal and state taxes—and even receive a federal tax refund of about $429 million—according to a Feb. 14 statement from Citizens for Tax Justice.
Wait. So you’re telling me that out of $1.1 billion in profits Facebook received last year, they are looking at getting a refund of $429 million? Yes – that is exactly the case. But as Citizens for Tax Justice points out, Facebook is not the only company intelligently taking advantage of our laughable tax system…
Of course, Facebook is not the only corporation that benefits from stock option tax breaks. Many big corporations give their executives (and sometimes other employees) options to buy the company’s stock at a favorable price in the future. When those options are exercised, corporations can take a tax deduction for the difference between what the employees pay for the stock and what it’s worth (while employees report this difference as taxable wages).
So companies reduce their profits by treating stock options as an expense that reduces current profits, as if the stock options were wages or salaries. The accounting principles behind this are somewhat understandable, but from a rational thinking perspective, this seems sort of silly. After all, they did make over a billion in profits.
This is not about Democrats, Republicans, or President Obama; this is about a government that is too stupid to understand what is really screwing their finances. While Washington can’t get anything done besides raising taxes on the middle class (through a 2% payroll tax hike from President ‘I won’t raise taxes on the middle class’ Obama), companies like Facebook and GE that make billions in profit are literally rolling in money as they learn to re-allocate funds in order to avoid shipping off their own money to pay down our country’s debt and fund all these programs Obama wants. Maybe if politicians all put down the finger that is constantly pointing at the opposite party and take their heads out of their asses, they may start to see that they are leaving precious debt-reducing tax revenue on the table from corporations that have seen their profit margins hit an all time high.
COMMENT below: Is it fair that companies like Facebook that make billions in profits continue to avoid paying taxes while regular middle class Americans get their taxes hiked by Obama and Congress?