Most of Elon Musk's Tesla stock sales

Most of Elon Musk's Tesla stock sales

Musk posted a poll on Twitter over the weekend, stating that since he doesn't receive a salary in cash, he only pays income tax when he sells stocks.  Because a lot has recently been taken out of unrealized gains as a way to avoid taxes, Twitterverse asked if it should sell 10% of its shares.  About 58% of respondents said yes. 
The tweet garnered attention, as did Elon Musk's many weird uses of social media.  But this movement is not really about the populist vote.

The real reason is that Musk only has a few months left before the deadline to exercise the stock options he vested in years ago.  If he doesn't use it, he loses it.  And if he exercises his shares, he will face a huge tax bill ranging from $ 11 billion to $ 16 billion at the current share price.

The continued rise in the value of Tesla shares could increase its tax bill.  Shares of the EV company, which rose 743% last year, have risen another 68% so far this year - although they were down 3% on Monday after the weekend poll.

Musk has 22.9 million stock options under consideration as part of a 2012 compensation package. These options are scheduled to expire on August 13, 2022, rendering them useless unless Musk exercises them.  before the deadline.

Once exercised, those shares will be treated as regular income subject to income tax, said Mark Luscombe, a senior federal tax analyst at Wolters Kluwer Tax & Accounting.

In most cases, these options, which are based on performance figures, are not taxed as income but at a lower rate of capital gain.  But Musk will be subject to an income tax rate because of a special rule: he owns more than 10% of all Tesla shares.

Taxable income is calculated based on the market value of the share on the date of exercise less the price paid to exercise the options.  At Monday level, that taxable amount would be around $ 27 billion - and the top federal tax rate is 37%, with another net investment tax of 3.8% on top.  So the exercise would cost Musk around $ 11 billion today.

Musk directly owns 170.5 million Tesla shares and has options to purchase an additional 73.5 million so far, including shares that expire next year.  He will get more if Tesla continues to grow and achieves achievable financial goals.

These stocks and options are worth nearly $ 300 billion, making him the richest person in the world, but a June analysis by ProPublica found that Musk had not paid federal income tax in  2018 - and in 2017 he had only paid $ 65,000.

Note that I don't get any cash wages or bonuses out of nowhere. I only have stocks, so the only way I can pay taxes in person is to sell the stocks, Musk wrote on Twitter on Saturday.  In June, he tweeted in response to a tweet on his tax bill, claiming that the only time I sell Tesla shares is when my stock options expire and I have no other choice.

Can add State Taxes to Their Tax Bill
Musk may also face state taxes in addition to the federal bill. He moved his residence from California to Texas, which has no state income tax, from California's top rate of 13.3%.  He announced his intention to move Tesla headquarters from California to Texas.

But he may be subject to at least some income tax in California, given that Tesla still has a large factory and offices in California and Musk works there.
Musk acknowledged this in his June tweet: By the way, I will continue to pay income taxes in California in proportion to the time I have spent in the state, which is and will be important.

It's unclear what the final state tax bill will offer, as California may or may not try to tax all of Musk's income from these expiration options given that nearly all of Tesla operations were in the business.  State when the initial grant was awarded.  An additional state income tax of 13.3% would amount to $ 3.6 billion.

It is also possible that Musk will receive additional options to purchase an additional 2.6 million shares from the 2012 grant. These options could be worth an additional $ 3 billion if vested before the August 2022 expiration date.

Rarely, an announcement of a plan to sell a stock by a major stakeholder is a good thing for a stock.  But many analysts remain bullish on Tesla and expect further price increases next year.  Daniel Ives, a senior equity research analyst at Wedbush Securities, said investors are already pricing some sales of Musk shares due to the expected tax bill.

With a tax bill, we're calculating north of $ 10 billion, selling stocks over the next few months is no surprise, Ives wrote in a note to clients on Monday, although a Twitter poll aimed at selling 10% of its shares is another question.  Weird TV series that can only happen to one company and one CEO in the world.

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