Nova Scotia Journal

Wednesday, December 8, 2021

Tesla CEO Elon Musk is facing a $15 billion tax bill

Tesla CEO Elon Musk

In the next months, Elon Musk will owe more than $15 billion in taxes on stock options.

Musk asked his 62.7 million followers on Twitter over the weekend to sell his 10% stake in Tesla. The upcoming tax bill makes selling Tesla shares the most likely this year, regardless of the outcome of the Twitter vote.

Tesla CEO Elon Musk faces a tax liability of more than $15 billion of stock in the coming months, making selling his stake to Tesla a possibility this year despite a vote on Twitter. Musk asked his 62.7 million followers on Twitter over the weekend to sell his 10% stake in Tesla. “Lately, a lot of unrealized profits have been made as a tax avoidance tool, so I’m offering to sell my 10% stake to Tesla,” he tweeted.

The Tesla CEO said he would “follow the results of this survey no matter how it turns out.” The result is 58% for sale and 42% against it, indicating he will sell his stake. Regardless of the poll results, Musk is likely to start selling millions of shares this quarter. The reason: the impending tax burden of more than $15 billion.

Musk accepted options under the compensation plan in 2012.

Because he doesn’t receive a salary or cash bonus, his fortune comes from stock bonuses and Tesla’s stock price profits. The 2012 grant is for 22.8 million shares at a performance price of $6.24 per share. Tesla shares ended at $1,222.09 on Friday, meaning earnings from the stock were just under $28 billion.

The company also recently announced that Musk has taken out a loan of its shares as collateral and that the sale may wish to repay some of the loan commitment.

As Tesla noted in its filing with the Securities and Exchange Commission for the third quarter of the 10th quarter of this year, “If the price of our common stock drops significantly, Mr. Musk could be forced by one or more banking institutions to sell shares. Common stock in Tesla to meet its loan obligations if this is not possible otherwise.

Such a sale could result in a further decline in the price of our common stock.”

The option will expire in August next year. However, to run it, Musk must pay income taxes. Because chances are taxed as team member income or compensation, they are taxed at the highest ordinary income rate of 37% plus a 3.8% net investment tax. He will also pay the highest California tax rate of 13.3% as the options are granted, and most of it is won when he is taxed in California.

The combined state and the federal tax rate is 54.1%.

So the total tax burden on the options would be $15 billion at current prices. Musk has not confirmed the size of the tax bill. But he tweeted, “Look, I don’t get any salary or bonuses anywhere. I only own shares, so I can only pay taxes by selling shares.” With the CEO having limited time to sell shares and Musk likely looking to increase sales for at least two quarters, analysts and tax experts expect Musk to start trading in the fourth quarter of 2021.

Source: CNBC News

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