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Elon Musk has been talking on Twitter the other day about selling some of his stock and now it makes sense. It's because he's facing a HUGE tax bill on options he received in 2012.


Musk was awarded options in 2012 as part of a compensation plan. Because he doesn’t take 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. Tesla shares closed at $1,222.09 on Friday, meaning his gain on the shares totals just under $28 billion.

The company has also recently disclosed that Musk has taken out loans using his shares as collateral, and with the sales, Musk may want to repay some of those loan obligations.

As Tesla noted 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. Yet in order to exercise them, Musk has to pay the income tax on the gain. Since the options are taxed as an employee benefit or compensation, 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.
 
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