Elon Musk faces a $15 billion tax invoice, which is probably going the actual motive he is promoting inventory

Tesla CEO Elon Musk gestures as he visits the development website of Tesla’s Gigafactory in Gruenheide close to Berlin, Germany, August 13, 2021.

Patrick Pleul | Reuters

Tesla CEO Elon Musk faces a tax invoice of greater than $15 billion within the coming months on inventory choices, making a sale of his Tesla inventory this 12 months possible whatever the Twitter vote.

Musk requested his 62.7 million Twitter followers over the weekend whether or not he ought to promote 10% of his Tesla holdings. “A lot is made recently of unrealized features being a way of tax avoidance, so I suggest promoting 10% of my Tesla inventory,” he tweeted.

The Tesla CEO stated he would “abide by the outcomes of this ballot, whichever approach it goes.” The outcomes had been 58% in favor of promoting and 42% towards, suggesting he’ll promote the shares.

Regardless of the outcomes of the ballot, Musk would have possible began promoting tens of millions of shares this quarter. The explanation: a looming tax invoice of greater than $15 billion.

Musk was awarded choices in 2012 as a part of a compensation plan. As a result of he would not take a wage or money bonus, his wealth comes from inventory awards and the features in Tesla’s share worth. The 2012 award was for 22.Eight million shares at a strike worth of $6.24 per share. Tesla shares closed at $1,222.09 on Friday, which means his acquire on the shares totals slightly below $28 billion.

The corporate has additionally not too long ago disclosed that Musk has taken out loans utilizing his shares as collateral, and with the gross sales, Musk might wish to repay a few of these mortgage obligations.

As Tesla famous in its third-quarter Securities and Trade Fee 10-Q submitting this 12 months: “If the worth of our widespread inventory had been to say no considerably, Mr. Musk could also be pressured by a number of of the banking establishments to promote shares of Tesla widespread inventory to fulfill his mortgage obligations if he couldn’t accomplish that by different means. Any such gross sales might trigger the worth of our widespread inventory to say no additional.”

The choices expire in August of subsequent 12 months. But with a purpose to train them, Musk has to pay the revenue tax on the acquire. For the reason that choices are taxed as an worker profit or compensation, they are going to be taxed at prime ordinary-income ranges, or 37% plus the three.8% web funding tax. He may even must pay the 13.3% prime tax charge in California because the choices had been granted and principally earned whereas he was a California tax resident.

Mixed, the state and federal tax charge shall be 54.1%. So the whole tax invoice on his choices, on the present worth, could be $15 billion.

Musk hasn’t confirmed the scale of the tax invoice. However he tweeted: “Notice, I don’t take a money wage or bonus from wherever. I solely have inventory, thus the one approach for me to pay taxes personally is to promote inventory.”

Since CEOs have restricted home windows during which to promote inventory, and Musk would possible wish to stagger the gross sales over at the very least two quarters, analysts and tax consultants have been anticipating Musk to start out promoting within the fourth quarter of 2021.

At an look on the Code convention in September, Musk stated: “I’ve a bunch of choices which can be expiring early subsequent 12 months, so … an enormous block of choices will promote in This fall — as a result of I’ve to or they will expire.”

Musk, after all, might additionally borrow extra towards his Tesla shares, which now whole over $200 billion. But he has already pledged 92 million shares to lenders for money borrowing. When requested on the Code convention about borrowing towards such risky shares, he stated, “Shares do not all the time go up, in addition they go down.”

CNBC’s Lora Kolodny contributed to this report.

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