November 10, 2021
During the weekend, Elon Musk, the world’s richest man, asked his Twitter followers in a poll whether he should sell 10% of Tesla’s stocks. Regardless of his post, he is very likely to sell his stocks to cover $15 billion worth in taxes due to the new Billionaires Income Tax proposed by Senator Ron Wyden, CNBC reports.
On November 6, Elon Musk shared a Twitter post that stated: “Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock.” He also added in the comments section that he will abide by whatever his followers decide. Many think that this was just a publicity stunt since Musk already signaled many times in the past that he will need to offload some of the stocks he has in the car-making company. Elon Musk’s Tesla is a pioneer in autonomous vehicle transportation technology, staying a step ahead of other Transport as a Service (TaaS) companies.
Selling Shares – the Only Way for Musk to Pay Taxes
Musk states that he doesn’t receive a salary or a cash bonus from the company, deriving much of the money from stock awards and share prices. Thus, the only way to pay off his taxes is to sell his shares.
Selling the shares is not likely to be a problem since stocks are considered one of the best investments. Both experienced investors and beginners just starting to invest on their own or using a robo advisor to guide them may be tempted to buy stocks of such a successful company.
In late 2012, Musk was awarded options worth 22.8 million at a strike price of $6.24 per option. As of Friday, they are worth $1,222.09, making his gain on the shares $28 billion. The options he was awarded will expire in August next year, so in order to exercise them, he needs to pay income tax on the gain, and the total tax bill could be $15 billion. How did we estimate the total tax bill? The options he has are taxed as an employee benefit, so they will be taxed 37% plus the 3.8% net investment tax. Since he was a resident of California at the time, he needs to pay according to the California top tax rate – 13.3%. This makes the total tax rate 54.1%.