Elon Musk faces one of ‘history’s biggest tax bills’

Elon Musk appears to have completed a busy year of trading in its Tesla shares on Tuesday. He will end up with one of the biggest tax bills in history.

Tesla’s CEO exercised options to buy an additional 1.6 million shares and sold 934,090 of those shares for $ 1 billion ($ 1.38 billion) to cover the tax bite he will be subject to on this purchase.

The trades ended the exercise of the 22.9 million options he had, which were to expire in August. He sold 10.3 million of the shares he acquired throughout the process to cover his tax withholding claims.

The world’s richest person faces one of the largest tax bills in recent history. (CarAdvice)

And he did so by using a pre-agreed plan that allows corporate insiders to sell shares in such a way that they cannot be accused of trading insider information.

Musk was granted the options in 2012 as part of its pay package, and the options earned as Tesla hit various financial and operational targets in subsequent years. But he did not have to pay tax on the options until he exercised them, which he began to do in November.

The value of the shares he acquired by exercising the options, less the nominal purchase price of $ 6.24 ($ 8.60) per share. share, will be taxed at $ 23.5 billion ($ 32.39 billion) of ordinary income, a significant amount but still modest for the world’s richest person, whose net worth Forbes is estimated at $ 280 billion (385.9 billion USD).

With a top tax rate of 40.8 percent, he faces a federal tax bill of about $ 10.7 billion ($ 14.75 billion) from the exercise of those shares.

Although Musk could have waited until 2022 to take advantage of these opportunities, he faced the risk of an 8 percentage point higher tax bill if congressional Democrats and the Biden administration pass Build Back Better legislation.

Although the bill currently appears unlikely to become law, it was still very much in play when Musk set up his pre-agreed trading plan, meaning there was still a significant risk of a higher tax bill if he waited until the next year.

In early November, Musk also sold an additional 5.4 million shares that he had held in trust. The total of 15.7 million shares he sold this year put some downward pressure on Tesla stock prices, as the average selling price he received on Tuesday of $ 1,091.73 ($ 1504.79) has fallen 11 percent from record high close before the start of his trades.

But Tesla shares have risen in the past week and have risen 54 percent so far this year through Tuesday’s close.

Elon Musk appears as Wario in a Saturday Night Live sketch.
Elon Musk appears as Wario in a Saturday Night Live sketch. (NBC)

The 5.4 million shares that Musk sold out of his confidence are most likely shares he has held since the company’s IPO in 2010, shares he received in return for investments he made in Tesla in its early days.

Instead of being taxed as income, the proceeds from these sales will be taxed at the lower, long-term capital gains rate of 20%. But it will still increase his taxes by $ 1.2 billion ($ 1.65 billion), bringing his 2021 federal tax bill to $ 10.7 billion ($ 14.75 billion).

Earlier this month, Musk said in a series of tweets that his $ 11 billion ($ 15.16 billion) in taxes would be the largest single-year tax bill ever paid by any individual.

Amazon CEO Jeff Bezos will be aboard Blue Origins' first human spaceflight.
Former Amazon CEO Jeff Bezos paid $ 0 in income tax. (AP)

But that’s something of a change from his previous tax bills. Since he does not receive cash salary or bonus from Tesla, it is likely that he had little or no taxable income in recent years. A study by ProPublica found that Musk and some of his fellow billionaires, including Amazon founder Jeff Bezos and former New York Mayor Michael Bloomberg, paid zero income tax in 2018.

These revelations prompted some Democrats to call for a “wealth tax” on the possessions of the country’s richest people, rather than just their incomes.

Musk began selling some of his shares in November after conducting a poll on Twitter, asking his millions of followers if he should sell 10 percent of his Tesla share to raise his taxable income. The vote said he should.

The latest sale represents less than 10 percent of his previous holdings

Including the additional shares he sold on Tuesday, Musk has now sold 9.2 percent of the shares he owned at the time of the Twitter poll.

Unless he sells another 1.3 million of the shares he now owns, he will come just below that 10 percent promise, but he said in a recent interview with a YouTuber that he has “sold enough shares to reach around 10 percent. percent, “so Tuesday’s sales are apparently the culmination of this year’s process.

Despite all the sales in 2021, Musk now owns more shares directly than he did at the start of its trading round, with 177.7 million shares in trust or owned directly, an increase of 4 percent from the 170.5 million he had in trust at the start.

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And even though the number of options has dropped by 22.9 million, he still has 59 million additional options that can be exercised as part of his 2018 salary package.

These have a higher but still modest exercise price of $ 70.01 each ($ 96.5). These options will not expire until 2028, and therefore are unlikely to be exercised or taxed in the coming years.

And given forecasts for Tesla’s upcoming sales and profits, it’s likely that somewhere between 25.3 million and 33.8 million of these options from the 2018 package will be earned in the coming months, more than replacing the options he utilized this year.

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