How much tax will Musk pay if he sells 10% of his stake in Tesla?

By Kerry A. Dolan

On Saturday, Elon Musk, the richest man on the planet, conducted a poll on Twitter about whether he should sell 10% of the stake he holds in Tesla. Result; 57.9% of the 3.5 million people who responded said they should sell their stake. If we assume, then, that he will actually sell the above percentage of shares – given that he stated on Twitter that he will “comply with the results of this poll” – what amount are we talking about?

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

Do you support this?

— Lorde Edge (@elonmusk) November 6, 2021

Musk owns 170.49 million shares of Tesla shares, as well as a significant number of market options, also of high value. Excluding purchase rights, 10% of its stake equals 17.049 million shares, valued at $ 20.8 billion based on the share closing price on Friday, at $ 1,222.09.

So what would Musk pay in taxes on the sale of these $ 20.8 billion shares? Just about $ 5 billion, provided it does not offset part or all of the amount with losses from other investments.

Meanwhile, the added value for him is huge. Musk paid about 49 cents a share for his initial investment in Tesla, according to electric vehicle company initial public offering documents filed with the U.S. Securities and Exchange Commission (SEC). Since then the company has proceeded to split its shares in a ratio of 5 new shares against 1 old one, with the result that the base cost of its initial investment is less than 10 cents per share.

The idea of ​​selling shares follows Sen. Ron Weiden’s proposal to tax billionaires’ unrealized profits as a “response” to the fact that some billionaires do not pay federal income tax because they can borrow on their own.

Musk wrote on Twitter on Saturday: “Note, I do not receive a salary or bonus from anywhere. I only have shares, so the only way to personally pay taxes is to sell shares.”

Since Tesla went public in 2010, Musk has sold shares only twice. In 2016, it sold 2.7 million shares for $ 593 million to pay its purchase rights tax. In July 2010, when Tesla made its initial public offering, Musk sold just over 1.4 million shares for a pre-tax $ 24 million.

Meanwhile, the electric vehicle company’s stock has jumped nearly 1,400% since the beginning of 2020, and Musk has increased his fortune by nearly $ 294 billion over the same period. Forbes estimates that its net worth on Friday night, November 5, amounted to 318.4 billion dollars. Musk is the first billionaire in the four decades that Forbes has been tracking the richest Americans whose fortune has exceeded the $ 300 billion mark.

The head of Tesla, however, has tried hard to look “poor” in terms of liquidity, while he has sold all his property, he lives in a tiny house that he says he rents from SpaceX, his space company.

And the Twitter poll may be a way for Musk to find it acceptable to redeem some of his shares, which he claims are traded at very high levels. In other words, it’s a way to show that the sale is not about taxes, but about converting tens of billions of Tesla shares into cash – at a time when stock is extremely expensive.

It is unlikely, however, that Musk will sell 17 million Tesla shares in one day. Placing shares of this size on the market could lead to a drop in the share. The most likely scenario is that it will sell smaller packages over the long term – perhaps months or even years, or possibly longer. Based on his moves in the past, they will probably have newer than Musk via his Twitter account. If the past is any guide, we’ll likely know more soon by keeping an eye on Musk’s Twitter account. Musk did not respond to a request from Forbes for comment on his plans to sell the shares.