Tesla CEO Elon Musk has shaved off about $380 million from his tax bill by exercising his stock options and selling the newly acquired shares during a dip in the company’s stock price.
After asking his followers on Twitter whether they wanted to sell 10% of their stock, he made the decision. Twitter pollearlier in the month
Musk evaded higher taxes by using stock options, a form of equity compensation where employees have the right to purchase shares at a fixed rate which is usually much lower than their market value.
The entrepreneur bought the shares – worth $1,151.30 at market value – for $6.24 each and sold them at a time when they’re cheaper than their all-time high of $1,229.91 earlier this month, ensuring that he’ll pay a lower tax rate on them.
The difference in strike price and actual share value will be subject to taxes, which amounts to approximately $2.7 billion.
Musk, 50, sold off about 2.6 million options through Friday, the Wall Street Journal reports, averaging a federal tax cost of $421.59 per share.
Elon Musk, 50 has cut hundreds of million off his tax bill through exercising stock options and then selling them when Tesla shares are less expensive than usual
These shares, worth $1151.30 market value, were purchased by the seller for $6.24 per share. They were sold at a price far lower than their original high of $1229.91 to ensure a lower rate on taxes
Musk asked his followers whether he wanted to sell his stock. But he apparently had already given permission for a plan that would allow him to exercise his stock options on September 14.
Musk would have been responsible for a $481.51 tax bill on each share, if the shares were sold at Tesla’s peak on November 4.
A large majority of his followers agreed that he should have sold 10% of their stocks on November 6.
Musk stated that he would abide by this poll’s results, regardless of how they turn out. However, Musk apparently had authorized Musk to plan to exercise 23 million of his stock options on September 14.
Tesla stock dropped more than 15% the week after polling. The stock is up by 114 per cent in the past 12 months, but it’s not performing as well. Rivian Automotive introduced a brand new electric vehicle, which may explain the slump, according to Journal.
Since then, he’s decided to make a million of the newly-executed stock options due to expire November 2022.
Stock options that are exercised will be subject to a top rate of 37 percent and 2.35 percent Medicare taxes. This is even though the owner lived in California and was working while purchasing shares.
Future gains exceeding the exercise price can be subject to tax at 23.8 percent according to current law, or 31.8% under Democrats’ Build back Better plan.
Musk previously stated that his taxes are higher when he disposes of shares he has held for long periods.
A careful observer will notice this. [this is]He tweeted November 13: “… closer to tax minimization than maximization,”
Musk is currently second in wealth behind Jeff Bezos. However, he does not receive a salary. Most of the money he makes from his electric car maker comes from loans that he used his stock to collateralize.
Tesla shares are now up by 89 percent over six months but they remain below their peak of November 4.
Musk receives no salary and his compensation is through stock options or equity. According to 2020 filings, about half of Musk’s Tesla stock has been pledged as collateral in personal loans.
An April 2020 financial filing revealed that about half of Tesla’s stock was pledged to collateral for loans personal.
Musk may find the solution to be a good one, as he is also founder and CEO at SpaceX. However, it does not make Tesla’s life easier.
While his tax bill decreases with Tesla’s stock prices, the company receives smaller tax deductions.
Tesla is able to save $370,000 on federal income taxes for every $1,000,000 that his option-exercise income drops, while losing $210,000 on deductions.
Steve Rosenthal is a senior fellow with the Tax Policy Center in Washington. He believes that the circumstances may have been designed for Musk and the company’s benefit.
Rosenthal stated to the Journal, “You can clearly see that there might be an incentive combination for the parties o lowball the value. That Tesla only gets 21 percent deduction, and Musk is picking up it at 37 percent,”
“Every dollar saved collectively by the parties is 16 cents.”