I give Mark and Priscilla a lot of credit for this. There's a big difference between 50% and 99%. There's a big difference between leaving your children a few hundred million and many billions. They have certainly exemplified the challenge to ''put your money where your mouth is''.
Having said that, the first thing I thought of was the tax implications. If the shares were to eventually be sold (but not donated), the State of California alone would earn roughly 6 billion dollars in tax revenue. And the Federal Government another 13 - 15 billion. Assuming a lot of variables that could push the value up or down, of course, and the fact that they would be unlikely to sell the majority of their shares any time soon. My understanding is that by donating the appreciated stock to a charity, under current laws, there is zero tax due. I wonder if there's a state financial forecaster or analyst in Sacramento having a bad day today.
"There's a big difference between 50% and 99%. There's a big difference between leaving your children a few hundred million and many billions."
There is a saying "you can name the price if I can name the terms". Zuckerberg saying this and when he actually does this are two different things. (Per my other comment). I am not saying that he won't (how would I know?) but this is a promise that is based on a future event that, given the age of both parents, could easily be 50 or 60 years in the future. And of course exactly nothing will happen if he changes his mind (he isn't going to issue a press release on that) and nobody has any access to his finances anyway. So he is free to say anything he wants for any reason and that of course could change. That said it's his money and he can do what he wants with it. And there is no reason to even announce this if not playing some PR angle.
Edit: And to my point I just got a WSJ Technology Alert email with the headline "FACEBOOK'S MARK ZUCKERBERG IS GIVING AWAY 99% OF HIS SHARES" and then further down in a paragraph "over the course of their lives".
Good! Government is far less efficient anyway. How many different agencies and special interest groups does the money now not have to touch to get to where Zuck thinks it's best used? The government would just buy a few more F35s or funnel it to bail out companies like GM. Or squander it on 'investments' such as Solydra or market-distorting Ethanol subsidies. It certainly wouldn't get funneled into meaningful education reform or lowering taxes for the rest of us.
I might be wrong, but didn't he already pay the massive tax bill for all of the stock options? Meaning all of those stocks would be taxed at long term capital gains rates, not at the high rates you are saying here. I believe his Federal taxes on sales would be 15% of current price - IPO price so approximately 4.5B not 13-15B at this time. That is also assuming Facebook continues to be dominant and doesn't go the way of every other social networking site before it, but that is a different issue.
And either way, the charitable organizations deserve to be supported and will do good for society, and they get to pick how it is used. Which doesn't seem like a bad thing, when the Federal government can barely agree on any budget at all.
The current capital gains tax rate he would be avoiding is 20%, or $9b at today's Facebook market cap. There is also a 3.8% Medicare tax added on that would come to another $1.7B. The state of California would also get their hands on it and take another 13.3% (or about $6B).
tl;dr Giving capital gains away is very tax advantageous!
I did miss the Medicare Tax part yes, however he takes a $1 salary which would put his regular tax bracket at 10% and long term capital gains would be 0% to start and work his way up to 15%. As long as he doesn't cash out $400k a year he never pays that 20%, and he shouldn't need to ever. You also need to subtract IPO price from current price. Which is about going to drop those estimates about 35%. It still a big chunk of change, no doubt, but I have no problem with getting around it by going to charities. Especially when he already paid ~$2Billion in taxes for the stock at IPO time. The top 400 tax payers only payed $16Billion in 2009 so, he has paid a huge amount.
It would be shocking if he doesn't have alternate income from investments that would knock him up to the top tax bracket. Even moderate dividends on $25m add up to putting you in the top bracket. I have to imagine he has more than $25m in non-Facebook assets.
Regardless, he's saving a fortune in tax by donating money to his own foundation. It could turn out to be awesome like the Gates Foundation, but it could also be a decades long experiment in tossing money down the drain as he works on pet projects. Hopefully the former!
I think that's why they created a non-profit organization, Chan Zuckerberg Initiative. Non-profits are taxed differently and I'm sure they'll figure out how to get the money where it needs to be and pay as little tax as possible.
"Chan is a diminutive suffix; it expresses that the speaker finds a person endearing. Thus, using chan with a superior's name would be condescending and rude. In general, chan is used for babies, young children, and teenage girls. It may also be used towards cute animals, lovers, and close friends. "
Yeah. I have an extended family member who took both names and a friend who opted to just take on his wife's maiden name and dropped his. Another set of friends came up with a last name that was new to them both.
The hyphenating of both names is an interesting concept, but would in all practicality be a difficult thing to pass on after a few generations if it were the standard. Though maybe I'm not thinking thorough it properly.
> Surnames combined with a hyphen, such as Meier-Müller, are still allowed. Combined surnames are not official registered names, but may be used in everyday situations and recorded in your passport and identity card.
So, it's not "official" but you can use it everywhere including on your official documents.
They didn't announce plans to sell immediately and given the timeframe, I'd imagine that selling/transferring those shares will be done in the most tax-advantaged way possible.
Besides taxes, selling 44.5 billion worth of shares would affect the share value negatively. They will probably use some kind of derivative contract to get funds for the non-profit.
He's not selling the shares. He said they "will give 99% of our Facebook shares." If he sold appreciated stock and donated the proceeds, he'd still have to pay tax on the capital gains, and could only deduct the amount of the actual donation, which would be smaller after tax.
By donating stock directly, he still gets to deduct the full value of the stock without paying any tax, and the charity (or more likely, private foundation) gets to keep the full value without paying any tax. And it could take as long as it wanted to liquidate the stock and get the best price.
> the charity (or more likely, private foundation) gets to keep the full value without paying any tax. And it could take as long as it wanted to liquidate the stock and get the best price.
Yes, and the foundation will likely not liquidate the stock, but use the proceeds of some kind of swap contract.
The Initiative is an LLC and not a public charity or private foundation, so as not to limit the activities they can take part in. This will all be taxed at some point (though the Initiative may further grant shares to public charities).
Yeah, I missed this the first time around. But you are not quite correct. An LLC is a pass-through entity. No doubt it will be treated as a disregarded entity for federal tax purposes. So, gifting shares to an LLC is not a taxable event. If the LLC sells shares for a non-charitable purpose (e.g. lobbying, or funding commercial ventures), then sure, that will be taxable. But if it in turn donates shares to either a private foundation or another charity, in that case, it will not be taxable, and will in fact be deductible for the Zucks.
Basically, if the Zucks own the LLC, then until funds actually leave the LLC they really haven't made a donation at all.
Having said that, the first thing I thought of was the tax implications. If the shares were to eventually be sold (but not donated), the State of California alone would earn roughly 6 billion dollars in tax revenue. And the Federal Government another 13 - 15 billion. Assuming a lot of variables that could push the value up or down, of course, and the fact that they would be unlikely to sell the majority of their shares any time soon. My understanding is that by donating the appreciated stock to a charity, under current laws, there is zero tax due. I wonder if there's a state financial forecaster or analyst in Sacramento having a bad day today.