Elon Musk appeared to have completed a hectic year of trading Tesla stock on Tuesday. He'll be saddled with one of the highest tax bills in history as a result.
Tesla CEO Elon Musk exercised options to purchase additional 1.6 million shares and sold 934,090 of those shares for $1 billion to satisfy the tax hit from that acquisition.
The trades completed the execution of his 22.9 million options, which were set to expire in August. To meet his tax withholding needs, he sold 10.3 million of the shares he acquired along the process. And he did it using a pre-arranged plan that allows company insiders to sell shares in such a way that they can't be accused of trading on insider information.
Musk received the options as part of his compensation package in 2012, and the options vested when Tesla (TSLA) met certain financial and operational benchmarks in succeeding years. However, he did not have to pay taxes on the options until they were exercised, which he began doing in November.
The value of the shares he obtained by exercising the options, minus the nominal purchase price of $6.24 per share, will be taxed as $23.5 billion in ordinary income, a sizable figure but still small for the world's richest individual, whose net worth Forbes estimates to be $280 billion. With a top tax rate of 40.8 percent, the exercise of these shares will result in a federal tax payment of about $10.7 billion.
Even though He could have postponed it until 2022 to exercise these choices, he would have faced a tax burden that was 8 percentage points greater if Congressional Democrats and the Biden administration passed the Build Back Better Act. Although that measure is unlikely to become law in the near future, it was still very much in play when Musk put up his pre-planned trading strategy, implying that there was still a real danger of a greater tax burden if he waited until next year.
Musk also sold an additional 5.4 million shares that he had held in trust in early November. The total of 15.7 million shares he sold this year placed downward pressure on Tesla stock prices, as the average sale price he earned on Tuesday of $1,091.73 is down 11% from the record high close before the start of his sales. However, Tesla (TSLA) shares have risen in the previous week and are up 54 percent year to date as of Tuesday's closing.
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