Elon Musk, a favorite Twitter personality and certified richest person in the world, suggested selling 10% of Tesla stock on Saturday. In his tweet, Musk asked his almost 63 million Twitter followers whether or not they thought it was a good idea.
“Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock.”
By selling 10% of his stock is 17.049 million shares worth $20.8 billion based on last week’s closing price of $1,222.09 a share. That means if Musk were to sell $20.8 billion in stocks, he would have to pay around $5 billion in taxes, Forbes estimates.
This is of course assuming he would not use the tax bill to offset any other losses on other investments. His capital gain on the stock is eye-watering — the stock, which now hovers at $1,162 after losses following Musk’s Twitter barrage, was bought for just 49 cents. Forbes points out that the shares have split 5 for 1 since then, meaning his cost basis from that investment is actually just 10 cents a share.
But that’s not the only tax bill the Tesla CEO is facing.
CNBC reports that, regardless of the results of the poll, Musk would have likely sold millions of shares this quarter in order to avoid a tax bill for more than $15 billion.
Musk was given a stock option in 2012 as part of his compensation plan. Since he does not receive a salary or cash bonus, the majority of his wealth comes from stock awards and the gains in Tesla’s share price. In 2012, this was for 22.8 million shares at a strike price of $6.24 per share. The gain on the shares is estimated at just under $28 billion.
Tesla recently disclosed that Musk has used some of these shares in collateral to take out loans. It is possible that with the profit from the sale of these shares, Musk could pay off some of his loan obligations.
Tesla even states in its third-quarter SEC filing report this year that “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.”
Musk has also 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.”
The stock options expire in August of next summer, but in order for Musk to exercise them, he will need to pay the income tax on the gain. These will be taxed at top ordinary-income levels or 37% plus the 3.8% net investment tax, CNBC reports. Since he was a California tax resident when the stock options were earned, he will also have to pay the 13.3% top tax rate in California. Combined, the state and federal tax rate will be 54.1%, meaning the total tax bill on his options at the current price would be $15 billion, the outlet reports.
Despite this, Tesla stock still slid 4% after his tweet-a-thon over the weekend. Although the potential massive sell-off might be logistical CEO practice, Musk has left investors skittish over the better part of 2021 with social media antics. The stock slid another 5% during Monday’s trading session.
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