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Zuckerberg Paying Over $1.5B in Taxes Thanks to IPO

The Financial Times reports that Facebook founder and CEO Mark Zuckerberg will be required to pay more than $1.5 billion in income taxes this year thanks to the social website offering its stock to public trading later on in May.

The reason behind the huge penalty, according to the report, is due to an agreement made back in 2005 that granted Zuckerberg the option of buying 120M shares as part of his compensation for acting as Facebook's chief executive. The options will be exercised before the IPO goes live, allowing Zuckerberg to purchase shares at crazy super-low 2005 prices.

The drawback is that the difference between the 2005 price and the current IPO price -- an estimated profit of nearly $5 billion USD -- will be considered as taxable income. Zuckerberg, a 27-year-old Standford dropout who has never sold any of his $22 billion worth of shares prior to now, will supposedly re-sell enough shares in the IPO to cover the tax bill.

"Zuckerberg’s need to sell shares to cover his personal tax bill will make this a big part of the company’s impending IPO and leave a question over how much cash the company will be able to keep for itself from the deal," the Financial Times reports.

Facebook said this week that it expects the IPO to raise $5 billion, which is half of what the Wall Street Journal predicted. Yet that number could change as the IPO approaches, as companies often begin with low figures to stimulate interest among investors before bringing out the bigger dollar signs.

Zuckerberg's gains will reportedly be taxed at the top U.S. marginal income tax rate of 35-percent. He will also pay the state of California a tax of 10-percent on the profits, but that can be deducted from his Federal bill. It will cost Zuckerberg only 6 cents a share to exercise his 120M options.

If Facebook manages to achieve the $100 billion valuation with the IPO, Zuckerberg's gain could reach to $6 billion USD, the report said.