Elon Musk, Chief Executive of Tesla bears a tax bill of over $15 billion in the upcoming months on stock options, with a sale of his Tesla stock this year probably nonetheless the Twitter vote.
Musk had asked his 62.7 million Twitter followers across the weekend if he should make a sale of his 10 percent of Tesla shares. He tweeted “Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock,”
The CEO of Tesla stated that he would “abide by the results of this poll, whichever way it goes.” The outcomes were 58 percent in support of selling and 42 percent against, recommending he will make the sale of the shares.
Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock.
Do you support this?
— Lorde Edge (@elonmusk) November 6, 2021
Despite the outcomes of the poll, Musk would have supposedly begun trading millions of stocks in this quarter. The cause behind that is an emerging tax bill of over $15 billion.
Musk Was Awarded the Options in 2012
In 2012, Musk was granted the options as a part of a compensation deal. As he doesn’t accept remuneration or cash bonus, his earnings arrive from stock awards and the surplus in the share price of Tesla.
The 2012 award was for 22.8 million shares at a punch rate of $6.24 each share. On Friday, Tesla stocks closed for $1,222.09, indicating his surplus on the stocks amounts to only within $28 billion.
Also, the company has recently revealed that Musk has drawn out loans with the use of his shares as collateral, and with the proceeds that came out of it, Musk may need to make the repayment of some of those loan liabilities.
As noted by Tesla in the 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 options will lapse in August of the coming year. Still, to use them, Musk has to make payment of the income tax on the surplus. As the options are taxable being an employee benefit or compensation, they will be liable for tax at top ordinary-income levels, or 37 percent along with the 3.8 percent net investment tax.
Also, along with that, he will be liable to pay the 13.3 percent top tax rate in California as the options were awarded and mainly earned whilst he was a California tax resident.
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What Would Be the Total Amount of Tax Bill According to the Current Price of Tesla Stock?
Collectively, 54.1 percent will be the state and federal tax rates. So, the total tax bill over his options would be $15 billion according to the current price.
The size of the tax bill has not been confirmed yet by Musk. However, 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.”
As CEOs have capped frames in which to make sales of stock, and Musk would probably like to swing the sales upon at least two quarters, it has been predicted by analysts and tax experts that Musk could begin selling off the shares in the last quarter of 2021.
In September, during an appearance at the Code conference, 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 might also take more loans by keeping his Tesla shares as collateral, which are now worth more than $200 billion.
Still, he has already indebted 92 million shares to financial institutions for cash loans. When at the Code conference he was asked regarding loans against such unpredictable shares, he stated, “Stocks don’t always go up, they also go down.”
Musk Was Awarded an Exceptional “CEO Performance Award”
Musk is still coming to have options over those awarded by the 2012 pay package of Tesla. In March 2018, the board of directors of Tesla awarded him an exceptional “CEO Performance Award” which consisted of 101.3 million stock options (adjusted for the 5-for-1 stock split in 2020) in 12 milestone-based tranches.