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BusinessElon Musk faces a $15 billion tax bill, which is likely the...

Elon Musk faces a $15 billion tax bill, which is likely the real reason he’s selling stock

Tesla CEO Elon Musk gestures as he visits the development web site of Tesla’s Gigafactory in Gruenheide close to Berlin, Germany, August 13, 2021.

Patrick Pleul | Reuters

Tesla CEO Elon Musk faces a tax invoice of greater than $15 billion in the coming months on stock choices, making a sale of his Tesla stock this 12 months likely no matter the Twitter vote.

Musk requested his 62.7 million Twitter followers over the weekend whether or not he ought to promote 10% of his Tesla holdings. “Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock,” he tweeted.

The Tesla CEO mentioned he would “abide by the results of this poll, whichever way it goes.” The outcomes have been 58% in favor of selling and 42% in opposition to, suggesting he’ll promote the shares.

No matter the outcomes of the ballot, Musk would have likely began selling tens of millions of shares this quarter. The reason: a looming tax invoice of greater than $15 billion.

Musk was awarded choices in 2012 as a part of a compensation plan. Because he does not take a wage or money bonus, his wealth comes from stock awards and the beneficial properties in Tesla’s share value. The 2012 award was for 22.8 million shares at a strike value of $6.24 per share. Tesla shares closed at $1,222.09 on Friday, that means his acquire on the shares totals just below $28 billion.

The firm has additionally just lately disclosed that Musk has taken out loans utilizing his shares as collateral, and with the gross sales, Musk could wish to repay a few of these mortgage obligations.

As Tesla famous in its third-quarter Securities and Exchange Commission 10-Q submitting this 12 months: “If the price of our common stock were to decline substantially, Mr. Musk may be forced by one or more of the banking institutions to sell shares of Tesla common stock to satisfy his loan obligations if he could not do so through other means. Any such sales could cause the price of our common stock to decline further.”

The choices expire in August of subsequent 12 months. Yet so as to train them, Musk has to pay the earnings tax on the acquire. Since the choices are taxed as an worker profit or compensation, they are going to be taxed at prime ordinary-income ranges, or 37% plus the 3.8% internet funding tax. He can even need to pay the 13.3% prime tax charge in California since the choices have been granted and largely earned whereas he was a California tax resident.

Combined, the state and federal tax charge will likely be 54.1%. So the complete tax invoice on his choices, at the present value, could be $15 billion.

Musk hasn’t confirmed the measurement of the tax invoice. But he tweeted: “Note, I do not take a cash salary or bonus from anywhere. I only have stock, thus the only way for me to pay taxes personally is to sell stock.”

Since CEOs have restricted home windows in which to promote stock, and Musk would likely wish to stagger the gross sales over at the very least two quarters, analysts and tax consultants have been anticipating Musk to start out selling in the fourth quarter of 2021.

At an look at the Code convention in September, Musk mentioned: “I have a bunch of options that are expiring early next year, so … a huge block of options will sell in Q4 — because I have to or they’ll expire.”

Musk, after all, might additionally borrow extra in opposition to his Tesla shares, which now complete over $200 billion. Yet he has already pledged 92 million shares to lenders for money borrowing. When requested at the Code convention about borrowing in opposition to such risky shares, he mentioned, “Stocks don’t always go up, they also go down.”

CNBC’s Lora Kolodny contributed to this report.

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