Elon Musk to pay $ 11 billion in taxes

New York (CNN Business) – Elon Musk appears to have wrapped up a very busy year on Tuesday with his Tesla shares. You’ll end up with one of the biggest tax bills ever to prove it.

The CEO of Tesla exercised his stock options to buy another 1.6 million shares, and sold 934,090 of these for $ 1 billion to cover the impact of the taxes he will have to pay for the purchase.

The operations completed the exercise of the 22.9 million options that it had and that expired in August. It sold 10.3 million of the shares it acquired throughout the process to cover its withholding tax requirements. And he did so using a pre-established plan that allows insiders to sell shares in such a way that they cannot be accused of insider trading.

Musk was granted the stock options in 2012 as part of his compensation package, and the options were consolidated as Tesla reached various financial and operating goals in subsequent years. But he did not have to pay taxes on them until he exercised them starting in November.

The value of the shares you acquired by exercising the options, less the nominal purchase price of US $ 6.24 per share, will be taxed at US $ 23.5 billion, as ordinary income, a considerable sum, but still modest for the company. richest person in the world, whose net worth is estimated at US $ 280,000 million, according to Forbes. With a maximum rate of 40.8%, it faces a federal tax bill of about US $ 10.7 billion for the exercise of these actions.

Although Musk could have waited until 2022 to exercise these options, he faces the risk of an 8 percentage point higher tax bill if Congressional Democrats and the Biden administration pass the law known as “Build Back Better”. Although it currently seems unlikely that bill will pass, was still on the table when Musk set up his preset transaction plan, which means there was still a significant risk of a higher tax bill if you waited until next year.

In early November, Musk also sold another 5.4 million shares he held in trust. The total of 15.7 million shares it sold this year put some downward pressure on Tesla’s share price, as the median sale price it received on Tuesday of $ 1,091.73 is a decline 11% compared to the record close prior to the start of operations. However, Tesla shares have recovered in the last week and they are up 54% year-to-date through Tuesday’s close.

A record tax bill

Those 5.4 million trust shares Musk sold are likely shares he held from the time of the company’s initial public offering in 2010 – shares he received in exchange for investments he made in Tesla in its early days. Instead of being taxed as income, the proceeds of those sales will be taxed at the lower long-term capital gains rate of 20%. However, this will raise your taxes by $ 1.2 billion, bringing your 2021 federal tax bill to $ 10.7 billion.

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

But that’s a big change from your previous tax payments. Given the does not receive any cash wages or bonuses From Tesla, you’ve likely had little or no taxable income in most recent years. A ProPublica research found that Musk and some of his fellow billionaires, including Amazon founder Jeff Bezos and former New York City Mayor Michael Bloomberg, paid zero income taxes in 2018. Those revelations prompted some Democrats to ask for a “wealth tax” on the possessions of the richest people in the country, rather than just their income.

Musk began selling some of his shares in November after conducted a poll on Twitter asking his millions of followers if he should sell 10% of his Tesla shares to increase his taxable income. The survey determined that I should do it.

Recent sales represent less than 10% of your previous shares

Taking into account the additional shares he sold on Tuesday, Musk has now sold 9.2% of the shares he held at the time of the Twitter poll. Unless he sells an additional 1.3 million shares of what he now owns, he will fall just short of that 10% promise, but he said in a recent interview with a YouTuber that he has “sold enough shares to get to around 10%. % “, so Tuesday’s sales are apparently the culmination of the process for the year.

Despite all the sales made in 2021, Musk now owns more direct shares that at the beginning of its streak of transactions, with 177.7 million shares in trust or in direct ownership, 4% more than the 170.5 million it had in trust at the beginning.

Although the number of stock options has decreased by 22.9 million, you still have an additional 59 million options that you can exercise as part of your 2018 compensation package. These have a higher, but still modest, strike price of $ 70.01 each. Those options won’t expire until 2028, so they likely won’t be exercised or taxed for years to come.

And given Tesla’s upcoming sales and earnings forecasts, it is likely that between 25.3 and 33.8 million of those options from that 2018 package will be granted in the coming months, more than replacing the options it exercised this year.

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Elon Musk to pay $ 11 billion in taxes