Elon Musk deals with a $15 billion tax expense, which is most likely the genuine factor he’s offering stock

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

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Tesla CEO Elon Musk gestures as he goes to the building website of Tesla’s Gigafactory in Gruenheide near Berlin, Germany, August 13, 2021.

Patrick Pleul|Reuters

Tesla CEO Elon Musk deals with a tax expense of more than $15 billion in the coming months on stock alternatives, making a sale of his Tesla stock this year most likely no matter the Twitter vote.

Musk asked his 62.7 million Twitter fans over the weekend whether he must offer 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 stated he would “abide by the results of this poll, whichever way it goes.” The outcomes were 58% in favor of selling and 42% versus, recommending he will offer the shares.

No matter the outcomes of the survey, Musk would have most likely began offering countless shares this quarter. The factor: a looming tax expense of more than $15 billion.

Musk was granted alternatives in 2012 as part of a settlement strategy. Because he does not take an income or money reward, his wealth originates from stock awards and the gains in Tesla’s share cost. The 2012 award was for 22.8 million shares at a strike cost of $6.24 per share. Tesla shares closed at $1,22209 on Friday, implying his gain on the shares amounts to simply under $28 billion.

The business has likewise just recently revealed that Musk has actually gotten loans utilizing his shares as security, and with the sales, Musk might wish to pay back a few of those loan commitments.

As Tesla kept in mind in its third-quarter Securities and Exchange Commission 10- Q filing this year: “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 alternatives end in August of next year. Yet in order to exercise them, Musk needs to pay the earnings tax on the gain. Since the alternatives are taxed as a worker advantage or payment, they will be taxed at leading ordinary-income levels, or 37% plus the 3.8% net financial investment tax. He will likewise need to pay the 13.3% leading tax rate in California because the alternatives were given and primarily made while he was a California tax homeowner.

Combined, the state and federal tax rate will be 54.1%. So the overall tax expense on his alternatives, at the existing cost, would be $15 billion.

Musk hasn’t verified the size of the tax expense. 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 actually restricted windows in which to offer stock, and Musk would likely wish to stagger the sales over a minimum of 2 quarters, experts and tax specialists have actually been anticipating Musk to begin offering in the 4th quarter of 2021.

At a look at the Code conference in September, Musk stated: “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, naturally, might likewise obtain more versus his Tesla shares, which now amount to over $200 billion. Yet he has actually currently vowed 92 million shares to loan providers for money loaning. When asked at the Code conference about obtaining versus such unstable shares, he stated, “Stocks don’t always go up, they also go down.”

Musk is still acquiring alternatives beyond those given by means of Tesla’s 2012 pay bundle. In March 2018, Tesla’s board of directors approved him an extraordinary “CEO Performance Award” including 101.3 million stock alternatives (changed for the 5-for-1 stock split in 2020) in 12 milestone-based tranches.

CNBC’s Lora Kolodny added to this report.