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Why is Elon Musk selling Tesla stock? A $15 billion tax bill might hold answer

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On Saturday, Musk called his 62.5 million followers on Twitter to vote on whether he should sell 10 percent stake in Tesla. A majority of 58 percent voted in favour of the sale.

Why is Elon Musk selling Tesla stock? A $15 billion tax bill might hold answer
Tesla chief Elon Musk is likely to sell 10 percent stock in the electric vehicle company this year. At the same time, he has a looming tax bill of over $15 billion. So, regardless of what Twitter may have decided, the billionaire would have sold his stock anyway, a report in CNBC said.
Musk, who does not draw a salary or cash bonus from the company, had received stock options in 2012 and 2018 as part of a compensation plan. A stock option gives the employee the right to buy or sell stocks at an agreed price.
Musk’s stock awards of 22.8 million shares came at $6.24 per share in 2012. Tesla share price closed at $1,222.09 on November 5, taking his gain on a share sale close to $28 billion. This would attract a total tax of about $15 billion, the report said.
Plans afoot
Musk had already announced his plans to sell part of his stock options in the fourth quarter. “I have a bunch of options that are expiring early next year, so ... a huge block of options will sell in Q4,” Musk had said at the Code Conference in September.
Since October 28, a number of current and former board members of Tesla, including Kimbal Musk, Robyn Denholm, Antonio Gracias and Ira Ehrenpreis have sold their shares.
Twitter poll
On Saturday, Musk called his 62.5 million followers on Twitter to vote on whether he should sell a 10 percent stake in Tesla.
“Much is made lately of unrealised gains being a means of tax avoidance, so I propose selling 10 percent of my Tesla stock,” he had tweeted.
A majority of 58 percent or 3.5 million Twitter users voted in favour of the sale, while 42 percent voted against the move. “I was prepared to accept either outcome,” Musk tweeted after the poll closed at 2:15 pm on Sunday in New York.
Tax implications
Musk’s 2012 stock option awards are set to expire in August 2022. If Musk sells them, he will be taxed at top ordinary-income levels at 37 percent. He will have to additionally pay 3.8 percent net investment tax.
Since the options were awarded when he was a resident of California, the state will tax Musk 13.3 percent. The federal and state combined tax rate would be 54.1 percent, which would make it a total tax bill of $15 billion at the current price.
According to analysts, Musk is likely to stagger his sales in two quarters, starting in the final quarter of 2021, CNBC reported.
Meanwhile, Musk had also used his shares as collateral to take loans from lenders. He has pledged 92 million shares for cash borrowing. Musk now has the option to further pledge Tesla shares and borrow more or repay loan obligations with a share sale.
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