Saturday, December 31, 2011
Following the stock market troubles of 2008, corporations handed out generous stock options to their executives that are now proving a great tax advantage for the businesses.
Federal tax law allows the companies to claim a tax deduction in future years that’s larger than the value of the stock options when they were granted to executives. This means the corporations will pay substantially less to the federal government come tax time. For example, if a company gave an executive stock worth $35 million and the executive sells the stock several years later for $165 million, the company can claim a deduction of $165 million which is treated the same as employee salaries and recorded as “excess tax benefits from stock-based compensation.”
Goldman Sachs, for instance, reported that the options exercised by its employees over three years reduced its federal income tax bill by $1.8 billion. Apple saved more than $1.6 billion during the same span, while Hewlett-Packard enjoyed an $850 million savings.
-Noel Brinkerhoff, David Wallechinsky
Tax Benefits From Options as Windfall for Businesses (by David Kocieniewski, New York Times)
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