Elon Musk Faces $15b Tax Bill as He Plans to Sell Tesla Stock

Tesla CEO Elon Musk will likely sell Tesla stock later this year. He is considering unloading around 10% of his holdings. Given that his options will expire by August, Musk needs to sell Tesla stock. And for this, he faces a potential $15 billion tax bill.  

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Musk Asks Twitter Followers If He Should Sell Tesla Stock

Over the weekend, Musk took to Twitter to ask his followers where he should sell Tesla stock. ““Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock,” he tweeted.

He promised to abide by the poll results once the results are in. The final count showed that 58% favored him selling his options and 42% opposed.  Poll results or not, many believe that Musk will have to sell. 

Musk famously doesn’t earn a salary or receive bonuses as CEO of Tesla.  He earlier tweeted about his compensation. “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 the stock,” he posted. The value of his stock awards increases every time Tesla gains in the stock market.

In 2012, Tesla awarded Musk with options of 22.8 million shares at a $6.24 strike price per share. For reference, Tesla shares last traded at $1,222.09 per share.

This gives Musk gains of more than $1,215 per share at 22.8 million or $27.7 billion. These options will expire by August 2022. 

Musk Awarded 2012 Options

In order to pay for his expenses, Musk took out loans using his Tesla shares as collateral. If Musk proceeds to sell Tesla shares, he may decide to repay some of his loans.

The electric vehicle company noted this in their 3rd 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,” it noted. 

Once Musk decides to cash in on his options, he will need to pay the income tax on his $27.7 billion gains. This includes 37% top income tax rates plus 3.8% net investment.

Then, being a California resident at the time of his options award, he will also need to pay an additional 13.3%. All in, his total bill is at 54.1%.

This means he faces a charge of around $15 billion if he sells the entire 22.8 million shares of Tesla stock.   

Limited Time For Musk To Sell Tesla Stock

Given the time limit to exercise options and sell the stock, Musk will likely spread his sales over two quarters. Many analysts and tax experts expect the Tesla CEO to start unloading Tesla shares late this year.

He made a direct reference to this during the Code conference last September. “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,” he said. 

Instead of selling Tesla stocks, Musk can also opt to borrow more. His total Tesla holdings now amount to over $200 billion. He already pledged 92 million of these shares to bank lenders for cash. Musk noted that “Stocks don’t always go up, they also go down.”

More Incoming Options

Even as Musk will sell Tesla stock, his options will continue to increase. In Marc 2018, the Tesla board gave him a “CEO Performance Award” equivalent to 101.3 million shares. These will be released in 12 milestone-based tranches. 

Watch the Bloomberg Technology video reporting that Twitter Poll says that Elon Musk should sell $21 Billion Tesla stake:

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What do you think about Tesla CEO Elon Musk’s looming tax bill of $15 billion? Will this satisfy the federal government, tax-wise?

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