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Elon Musk faces a $ 15 billion tax bill, which is probably the real reason he is selling shares.

Tesla CEO Elon Musk gestures as he visits the Tesla Gigafactory construction site in Grünheide near Berlin, Germany on August 13, 2021.

Patrick Pöhl | Reuters

Tesla CEO Elon Musk will have to pay more than $ 15 billion in taxes on stock options in the coming months, making a sale of his Tesla shares this year likely regardless of the Twitter vote.

Over the weekend, Musk asked his 62.7 million Twitter followers if he should sell 10% of his Tesla assets. “Lately, a lot has been done out of unrealized profits as a tax evasion tool, so I propose to sell 10% of my Tesla shares,” he tweeted.

The Tesla CEO said he “will stick to the results of this poll anyway.” The results were 58% for the sale and 42% against, suggesting he would sell the stock.

Regardless of the poll results, Musk would likely have started selling millions of shares this quarter. Reason: A pending tax bill worth more than $ 15 billion.

Musk was granted options in 2012 as part of a compensation plan. Since he does not receive a salary or cash bonuses, his wealth comes from stock premiums and Tesla’s stock appreciation. In 2012, 22.8 million shares were awarded at an exercise price of $ 6.24 per share. Tesla shares closed at $ 1,222.09 on Friday, which means its stock earnings are just under $ 28 billion.

The company also recently reported that Musk was taking out loans using his shares as collateral, and with the sale, Musk may want to pay off some of those loan obligations.

As Tesla noted in its 10-Q report to the Securities and Exchange Commission for the third quarter of this year: “If the price of our common stock falls significantly, Mr. Musk may be forced by one or more banking institutions to sell the company’s shares. Tesla’s common stock to pay off its loan obligations if it can’t do it in other ways. Any such sale could result in a further decline in the price of our common shares. “

The options expire in August next year. But in order to implement them, Musk has to pay income tax on profits. Since the options are taxed as employee benefits or compensation, they will be taxed at the maximum ordinary income level, or 37% plus 3.8% tax on net investment. He will also have to pay a top tax rate of 13.3% in California as the options were granted and mostly earned when he was a California tax resident.

Combined, the state and federal tax rate is 54.1%. Thus, the total tax bill for his options at the current price will be $ 15 billion.

Musk did not confirm the size of the tax invoice. But he tweeted, “Note, I don’t take cash paychecks or bonuses from anywhere. I only have shares, so the only way for me personally to pay taxes is to sell shares. “

Since CEOs have limited options to sell shares, and Musk would likely want to split sales by at least two quarters, analysts and tax experts expected Musk to start selling in the fourth quarter of 2021.

Speaking at the Code conference in September, Musk said, “I have several options that expire early next year, so … a huge block of options will be sold in Q4 – because I have to do it, or they will expire. … “

Musk could of course also borrow more of his Tesla shares, which now stand at over $ 200 billion. However, he has already pledged 92 million shares to creditors as a loan. When asked at a Code conference about borrowing against such volatile stocks, he said, “Stocks don’t always go up, they also go down.”

Laura Kolodny of CNBC contributed to this report.


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