Elon Musk Gets a $15 Billion Tax Bill and Asks Twitter What to Do

Tesla CEO Elon Musk took to his Twitter over the weekend to ask whether he should sell 10% of his holdings in the electric vehicle maker.

The CEO is facing a $15 billion tax bill and may be the likely reason why he is selling stock in Tesla.

Musk asked his 62.7 million Twitter followers over the weekend whether he should sell 10% of his Tesla holdings.

“Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock,” he tweeted.

Musk said he would “abide by the results of this poll, whichever way it goes.” The results were 58% in favor of selling and 42% against, suggesting he will sell the shares.

Musk was awarded options in 2012 as part of a compensation plan but due to not taking a salary or cash bonus, his wealth comes from stock awards and the gains in Tesla’s share price. The 2012 award was for 22.8 million shares at a strike price of $6.24 per share. His shares now total just under $28 billion.

Tesla said in its third-quarter Securities and Exchange Commission 10-Q filing this year: “If the price of our common stock were to decline substantially, Mr. Musk may be forced by one or more of the banking institutions to sell shares of Tesla common stock to satisfy his loan obligations if he could not do so through other means. Any such sales could cause the price of our common stock to decline further.”

The options expire in August of next year. To exercise them, Musk has to pay the income tax on the gain.

The options are taxed as an employee benefit or compensation which means they will be taxed at top ordinary-income levels, or 37% plus the 3.8% net investment tax. He will also have to pay the
13.3% top tax rate in California since the options were granted and mostly earned while he was a California tax resident.

Combined, the state and federal tax rate will be 54.1%. So the total tax bill on his options, at the current price, would be $15 billion.

Musk also tweeted, “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.”

He had said back in September, “I have a bunch of options that are expiring early next year, so … a huge block of options will sell in Q4 — because I have to or they’ll expire.”

Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.