International

Elon Musk Owes $11bn In Taxes After Tesla Stock Sales

Published

3 years ago

Dec 29, 2021.

Yinka Akanbi

He sold off 10.3 million of the shares he acquired thoughout the process to cover his tax withholding requirements

EKO HOT BLOG reports that Elon Musk appears to have wrapped up a busy year of trading his Tesla shares Tuesday.

He’ll end up with one of the largest tax bills in history to show for it.

The Tesla CEO exercised options to buy another 1.6 million shares, and sold 934,090 of those shares for $1 billion to cover the tax bite he’ll be facing on that purchase.

The trades completed the exercise of the 22.9 million options he held that were due to expire in August.

He sold off 10.3 million of the shares he acquired thoughout the process to cover his tax withholding requirements. And he did it using a pre-arranged plan that allows company insiders to sell shares in such a way that they can’t be accused of trading on insider information.

Musk was granted the options in 2012 as part of his pay package, and the options vested as Tesla (TSLA) hit various financial and operational targets in subsequent years. But he did not have to pay taxes on the options until he exercised them, which he started to do in November.

The value of the shares he acquired by exercising the options, less the nominal purchase price of $6.24 a share, will be taxed equal to $23.5 billion of regular income, a substantial sum, but still modest for the world’s richest person, whose net worth Forbes has estimated to be $280 billion. With a top tax rate of 40.8%, he faces of a federal tax bill of about $10.7 billion from the exercise of these shares.

Although Musk could have waited until 2022 to exercise these options, he faced the risk of an 8 percentage point higher tax bill if Congressional Democrats and the Biden administration pass the Build Back Better legislation. Although that bill currently appears unlikely to become law, it was still very much in play when Musk set up his pre-arranged trading plan, meaning there was still a significant risk of a higher tax bill if he waited until next year.

In early November, Musk also sold an additional 5.4 million shares that he had held in trust. The total 15.7 million shares he sold this year put some downward pressure on the price of Tesla stocks, as the average sale price he received on Tuesday of $1,091.73 is down 11% from the record high close before the start of his trades. But Tesla (TSLA) shares have rallied in the last week and are up 54% so far this year through Tuesday’s close.

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