Elon Musk Net Worth 2021: Why Is the Tesla CEO Paying $11 Billion in Taxes?

Elon Musk Net Worth 2021 is at $278 billion.

Elon Musk tweets the $11 billion figure in a tweet on Sunday (Dec. 21).

Elon Musk Net Worth 2021

Elon Musk's net worth 2021 is reported to be at $278 billion.

With that net worth, Elon Musk's tax bill is as high as $11 billion. The huge amount of tax is proven correct, backed up by his latest stock trade reports with the Securities and Exchange Commission (SEC).

The Elon Musk tweets can somehow be stemmed from what he stated last week in the middle of a Twitter spat with Sen. Elizabeth Warren when he said he'd pay the biggest individual tax bill in history this year.

That would be a significant shift from recent years as billionaires like Jeff Bezos and Michael Bloomberg paid no income taxes in 2018, as reported by CNN.

Musk's salary is zero and he does not get a monetary salary or bonus.

Instead, he is compensated with stock options, which provide him the opportunity to purchase Tesla shares at a price equal to the market price at the time the options were given, but likely substantially below their value when they were exercised.

Elon Musk Tax Bill At $11 Billion

As reported by CNN, the reason behind this maneuver is that Musk is a few months away from having to activate stock options he earned several years ago.

He will lose his stock options if he does not use them before they expire.

However, in exercising his stock options, he'll be hit with a massive tax payment ranging from about $11 billion to as much as $16 billion, depending on current share prices.

Furthermore, the value of Tesla shares continues to rise, which might increase his tax bill even more.

The Tesla stock has risen another 68% this year after rising 743% last year.

Musk earned 25.5 million split-adjusted options in 2012, with 22.9 million vesting over the next three years as Tesla met specific operational and financial goals.

However, he wasn't required to pay taxes on those options until he used them to purchase stock.

That earned block of options is set to expire in August 2022, so Musk begins the process of converting them into stock in early November.

Elon Musk is the richest person Earth, in his tax bracket, the value of the purchased shares is taxed as income when he exercises the options. That is why Elon Musk's tax bill is enormous.

With that, Musk has been selling a portion of the newly acquired shares to meet the withholding tax owing on the sales as part of the process of exercising the options.

Tax Avoidance Strategy

Throughout most circumstances, options like these, which are based on meeting performance targets, are taxed at the lower capital gains rate rather than as income.

Musk, on the other hand, would be subject to the income tax rate due to a specific rule: he owns more than 10% of Tesla's total shares.

The taxable income is determined by subtracting the price paid to exercise the options from the stock's market value on the exercise date.

As a result, Musk selling and buying his stocks would cost him about $11 billion in taxes.

According to CNN, this is also called tax avoidance strategies.

The research does demonstrate how the wealthy fund their lifestyles by taking out loans against their assets, such as real estate or equities, rather than realizing the asset's value.

They'll pay less interest to the bank than they would to the government in taxes.