The most popular social network is sitting quite comfortable during tax time. Facebook’s first annual earning report is showing a multibillion-dollar tax deduction for the price of their executive stock options and share awards. In 2012, Facebook reported $1.1 billion in pre-tax profits from their United States operation. According to a statement from the Citizens for Tax Justice, the company will most likely pay no federal and state taxes, and receive about $429 million in a federal tax refund.
The tax footnotes in Facebook’s Jan. 30 financial statement are “an amazing admission,” according to Citizens for Tax Justice. In fact, the organization said that the breaks Facebook is claiming is not illegal. Facebook and other similar companies are allowed to consider the cost of non-cash compensation (stock options) as an expense that reduces their profits.
In Facebook’s financial statements, one will not find the $429 million tax refund. The social network company is claiming that in 2012 they had a $559 million federal tax liability. However, this tax liability is not an actual payment. Facebook said in their footnote that they had a $1.03 billion “excess tax benefit” for the previous year.
That “excess tax benefit” is associated to the “stock option exercises and other equity awards.” This benefit is what turns the federal tax liability into a refund. However, a small portion is applied to state taxes. According to BusinessWeek, Facebook is anticipating lowering their tax liability in the future.
The social network plans on reducing it by an additional $2.17 billion. This will be possible by using future net operating loss carry-forwards that it has banked. David Ebersman, Chief Financial Officer at Facebook, said that the accumulated tax benefits this previous fiscal year has set the company up with nearly $10 billion in cash and investments. He continued to say it is, “giving us great flexibility and risk protection.”