Business

Elon Musk is dealing with a $ 15 billion tax invoice, which is probably going the actual motive he’s promoting shares

Tesla boss Elon Musk visiting the construction site of Tesla’s Gigafactory in Gruenheide near Berlin, Germany, 13 August 2021.

Patrick Pleul | Reuters

Tesla CEO Elon Musk faces a tax burden of more than $ 15 billion on stock options in the coming months, making a sale of his Tesla stock likely this year regardless of the Twitter vote.

Musk asked his 62.7 million Twitter followers over the weekend to sell 10% of his Tesla inventory. “A lot has been done lately with unrealized gains being a means of tax avoidance, so I suggest selling 10% of my Tesla stock,” he tweeted.

The Tesla boss said he would “stick to the results of this survey, no matter which way it goes”. The results were 58% for the sell and 42% against, suggesting he will sell the shares.

Regardless of the poll results, Musk would likely have started selling millions of shares this quarter. The reason: an impending tax bill of more than 15 billion dollars.

Musk were granted options under a compensation plan in 2012. Since he does not receive any salary or cash bonus, his fortune comes from stock bonuses and the price gains from Tesla. The 2012 grant was for 22.8 million shares at an exercise price of $ 6.24 per share. Tesla stock closed at $ 1,222.09 on Friday, meaning its earnings from the stock are close to $ 28 billion.

The company also recently announced that Musk has taken out loans using its shares as collateral, and with the sales, Musk may be looking to repay some of those loan commitments.

As Tesla noted in its 10-Q filing process for the third 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 of. to sell Tesla common stock to meet his loan obligations when he couldn’t otherwise do so. Such sales could cause the price of our common stock to decline further. “

The options expire in August next year. However, in order to exercise them, Musk must pay income tax on profits. Since the options are taxed as employee benefits or compensation, they are taxed on the highest ordinary income, or 37% plus a net investment tax of 3.8%. He will also have to pay the highest California tax rate of 13.3% since the options were granted and largely earned while he was taxable in California.

The combined state and federal tax rate is 54.1%. So the total tax burden on his options would be $ 15 billion at the current price.

Musk has not confirmed the size of the tax bill. But he tweeted, “Note that I don’t get any cash or bonus anywhere. I only have stocks, so the only way I can pay taxes in person is by selling stocks.”

With CEOs having limited windows to sell stocks and Musk likely looking to stagger sales over at least two quarters, analysts and tax experts expect Musk to begin selling in the fourth quarter of 2021.

Speaking at the Code conference in September, Musk said, “I have a number of options that expire early next year, so … a huge block of options will be sold in the fourth quarter – because I have to or they will expire.”

Musk could, of course, borrow more from his Tesla stock, which now stands at over $ 200 billion. Still, he has already pledged 92 million shares to lenders to raise cash. When asked at the Code Conference about borrowing against such volatile stocks, he said, “Stocks don’t always go up, they go down too.”

Musk is still collecting options beyond those granted through Tesla’s 2012 salary package. In March 2018, Tesla’s Board of Directors presented him with an unprecedented “CEO Performance Award” consisting of 101.3 million stock options (adjusted for the 5-for-1 share split in 2020) in 12 milestone-based tranches.

– CNBC’s Lora Kolodny contributed to this report.

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