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 website 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 within the coming months on inventory choices, making a sale of his Tesla inventory this yr possible regardless of 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. “A lot is made currently of unrealized beneficial properties being a way of tax avoidance, so I suggest promoting 10% of my Tesla inventory,” he tweeted.

The Tesla CEO stated he would “abide by the outcomes of this ballot, whichever manner it goes.” The outcomes had been 58% in favor of promoting and 42% in opposition to, suggesting he’ll promote the shares.

Regardless of the outcomes of the ballot, Musk would have possible began promoting thousands and thousands of shares this quarter. The rationale: a looming tax invoice of greater than $15 billion.

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

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

As Tesla famous in its third-quarter Securities and Change Fee 10-Q submitting this yr: “If the worth of our widespread inventory had been to say no considerably, Mr. Musk could also be pressured by a number of of the banking establishments to promote shares of Tesla widespread inventory to fulfill his mortgage obligations if he couldn’t achieve this by means of different means. Any such gross sales may trigger the worth of our widespread inventory to say no additional.”

The choices expire in August of subsequent yr. But with a purpose to train them, Musk has to pay the earnings tax on the achieve. Because 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 three.8% web funding tax. He may also should pay the 13.3% prime tax charge in California because the choices had been granted and principally earned whereas he was a California tax resident.

Mixed, the state and federal tax charge will likely be 54.1%. So the overall tax invoice on his choices, on the present worth, can be $15 billion.

Musk hasn’t confirmed the dimensions of the tax invoice. However he tweeted: “Be aware, I don’t take a money wage or bonus from wherever. I solely have inventory, thus the one manner for me to pay taxes personally is to promote inventory.”

Since CEOs have restricted home windows during which to promote inventory, and Musk would possible need to stagger the gross sales over no less than two quarters, analysts and tax specialists have been anticipating Musk to begin promoting within the fourth quarter of 2021.

At an look on the Code convention in September, Musk stated: “I’ve a bunch of choices which can be expiring early subsequent yr, so … an enormous block of choices will promote in This fall — as a result of I’ve to or they will expire.”

Musk, in fact, may additionally borrow extra in opposition to his Tesla shares, which now whole over $200 billion. But he has already pledged 92 million shares to lenders for money borrowing. When requested on the Code convention about borrowing in opposition to such unstable shares, he stated, “Shares do not at all times go up, in addition they go down.”

Musk remains to be racking up choices past these granted through Tesla’s 2012 pay package deal. In March 2018, Tesla’s board of administrators granted him an unprecedented “CEO Efficiency Award” consisting of 101.3 million inventory choices (adjusted for the 5-for-1 inventory cut up in 2020) in 12 milestone-based tranches.

CNBC’s Lora Kolodny contributed to this report.

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