Here’s How Much Elon Musk Would Pay In Taxes If He Sells 10% Of His Tesla Stock
On Saturday, Elon Musk, the world’s richest person, mulled on Twitter whether to sell 10% of his Tesla stock. The results of the Twitter poll he created: 57.9% of the 3.5 million respondents said he should sell the stake. So assuming he does sell— and he said on Twitter that he would “abide by the results of this poll”— how much does it come to?
Musk owns 170.49 million shares of Tesla, plus a bunch of very valuable options. Leaving the options aside, 10% of his stock is 17.049 million shares, worth $20.8 billion based on Friday’s closing price of $1,222.09 a share.
What would Musk pay in taxes on a $20.8 billion sale? Just about $5 billion, assuming he’s not offsetting it with losses on other investments. His capital gain is enormous. Musk paid about 49 cents a share for his initial investment in Tesla, according to the SEC filing for the company’s initial public offering; the shares have split 5 for 1 since then, so his cost basis from that investment is just under 10 cents a share.
The notion of selling shares follows a short-lived proposal by Sen. Ron Wyden to tax billionaires’ unrealized gains in response to the fact that some billionaires don’t pay federal income tax because they can borrow against their shares instead of selling them. Musk tweeted on Saturday “Note, I do not take a cash salary or bonus from anywhere. I only have stock, thus the only way for me to pay taxes personally is to sell stock.”
Since Tesla went public in 2010, Musk has only sold stock twice. In 2016, he sold 2.7 million shares for a total of $593 million in order to cover taxes for options he had exercised. In July 2010, when Tesla had its initial public offering, Musk sold a bit more than 1.4 million shares for a pre-tax total of $24 million. The stock has climbed nearly 1,400% since the start of 2020 and Musk has gotten nearly $294 billion richer in the process. Forbes calculates his net worth as of Friday evening November 5 at $318.4 billion. Musk is the first billionaire Forbes has tracked in our four decades of chronicling the richest Americans to cross the $300 billion mark.
Musk has made a big deal about being cash poor and selling all his homes. He lives in a tiny box house that he says he rents from SpaceX, the rocket company he runs. This Twitter poll may be a way for Musk to make it look acceptable to cash out of some of his stock, which he has suggested is trading too high. So one way to look at this: It’s not about taxes but about moving tens of billions of volatile Tesla stock into cash—at a time when the stock looks incredibly pricey.
It’s unlikely that Musk would sell 17 million shares of Tesla in one day. Such a flood of shares on the market could drive down the stock price. A more likely scenario would be smaller sales over an extended period of time—maybe months or a year, or possibly longer. If the past is any guide, we’ll likely know more soon by keeping an eye on Musk’s Twitter account. Musk has not responded to a request for comment from Forbes on his plan for the sale.
Twitter Users Say ‘Yes’ to Musk’s Proposal to
Sell 10 Percent of His Tesla Stock
Tesla Inc. CEO Elon Musk should sell about 10 percent of his Tesla stock, according to 57.9 percent of people who voted on his Twitter poll asking users of the social media network whether he should offload the stake.
“I was prepared to accept either outcome,” Musk said, after the voting ended.
The world’s richest person wrote on Twitter on Saturday that he would offload 10 percent of his stock if users approved the proposal.
Musk has previously said he would have to exercise a large number of stock options in the next three months, which would create a big tax bill. Selling some of his stock could free up funds to pay the taxes.
As of June 30, Musk’s shareholding in Tesla came to about 170.5 million shares and selling 10 percent would amount to close to $21 billion based on Friday’s closing, according to Reuters calculations.
The poll garnered more than 3.5 million votes.
“Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10 percent of my Tesla stock,” Musk said on Saturday, adding that he does not take cash salary or bonus “from anywhere”, and only has stock.
Senate Democrats have unveiled a proposal to tax billionaires’ stocks and other tradeable assets to help finance President Joe Biden’s social spending agenda and fill a loophole that has allowed them to defer capital gains taxes indefinitely.
Musk has criticized the proposal saying, “Eventually, they run out of other people’s money and then they come for you.”
Senate Finance Committee Chairman Ron Wyden, who floated the tax proposal, said on Saturday: “Whether or not the world’s wealthiest man pays any taxes at all shouldn’t depend on the results of a Twitter poll.”
“It’s time for the Billionaires Income Tax.”
Including stock options, Musk owns a 23 percent stake in Tesla, the world’s most valuable car company whose market value recently exceeded $1 trillion. He also owns other valuable companies including SpaceX.
His brother Kimbal Musk on Friday sold 88,500 Tesla shares, becoming the latest board member to offload a large number of Tesla stocks which hit record highs.
A week ago, Musk said on Twitter that he would sell $6 billion in Tesla stock and donate it to the United Nations’ World Food Program (WFP), provided the organization disclosed more information about how it spent its money.
Tesla bull Gary Black, portfolio manager at The Future Fund, said that Musk’s potential stock sale would lead to “1–2 days of modest selling pressure,” but said there would be solid institutional demand to snap up the shares at a discount.
Taxes on Stock Option Exercise
Musk has said he does not want to borrow against stock to pay taxes because stock value could go down.
He has an option to buy 22.86 million shares at $6.24 each, which expires on Aug. 13 next year, according to a Tesla filing. The option exercise could lead to gains of roughly $28 billion based on Tesla’s Friday closing price of $1,222.09.
In September, Musk said he is likely to pay taxes of over half the gains he would make from exercising options. Last year, he said he has been relocated from California to Texas which should lead to a cut to the total tax bill because Texas has no income tax, experts say.
“(It) seems crazy to borrow that much to pay taxes, so I have to assume he’d need to liquidate a substantial amount of the shares purchased from the option exercise to pay taxes,” said Bryan Springmeyer, an attorney at San Francisco-based law firm Springmeyer Law.
By Aishwarya Nair and Hyunjoo Jin
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