Elon Musk
Source: Getty Images

Elon Musk’s Upcoming Tax Bill Might Explain His Tesla Stock Sell-Off

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Dec. 13 2021, Published 3:02 p.m. ET

Tesla CEO and newly-minted TIME Person of the Year Elon Musk does have to pay taxes—sometimes, at least. As ProPublica reported in June, Elon Musk's federal-income-tax payments amounted to $68,000 in 2015, $65,000 in 2017… and $0 in 2018.

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ProPublica also reported that Musk grew his wealth by $13.9 billion from 2014 to 2018 but reported $1.52 billion in income and paid $455 million in taxes, which made his “true tax rate” 3.27 percent, while the median American household’s federal tax rate is 14 percent.

Musk responded to claims of tax avoidance by vowing to sell 10 percent of his Tesla stock.

ProPublica also explained how the ultra-rich can access billions without selling stock or taking a salary. They take out loans and use shares of their companies as collateral. As the organization noted, Tesla reported in 2020 that Musk had put up around 92 million shares of the company—currently worth over $88 billion—as collateral for personal loans.

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Elon Musk
Source: Getty Images

In response to accusations that unrealized gains are a means of tax avoidance, Musk asked Twitter users last month whether he should sell 10 percent of his Tesla stock. He added that he would “abide by the results of this poll, whichever way it goes.” By the end of the poll, 58 percent of respondents said that they supported him selling the shares.

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The SpaceX founder does indeed appear to be abiding by those results. MarketWatch noted on Dec. 9 that Musk has sold about 11.03 million Tesla shares (currently worth around $10.6 billion) since Nov. 8. This is about 6 million shares shy of 10 percent of his Tesla stake at the time of his Twitter poll.

Elon Musk is selling stock ahead of stock option expirations and possible tax increases.

Musk might not have been totally transparent in his Twitter poll. CNBC reported last month that the businessman would have probably sold Tesla stock no matter what the results of the poll were, since he might have a massive tax bill in his future.

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Tesla awarded Musk stock options—22.8 million shares at a strike price of $6.24 per share—as part of his compensation plan in 2012. When those options expire in August 2022, Musk will be able to exercise them, but then he’ll have to pay income tax on that gain. CNBC calculated that his combined state and federal tax rate on the options would be 54.1 percent. (With Tesla’s stock price at the time of CNBC’s report, that bill would be more than $15 billion.)

Lawmakers have been considering tax increases. One proposal would impose a 5-percent tax on adjusted gross income above $10 million and another 3-percent tax on income over $25 million, including capital gains from stock sales, as The Wall Street Journal reports. Daniel Taylor, an accounting professor at the University of Pennsylvania’s Wharton School, told the newspaper that wealthy taxpayers have “a powerful incentive to sell this year” before that proposed tax hike goes into effect.

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