We all know that most countries in the world are subject to personal income tax, and a white-collar worker with a higher income in the United States, if the annual salary reaches more than 500,000 US dollars, the marginal tax rate is basically 37%.
How much tax does Musk pay today's world's richest man?
Musk reportedly did not pay any federal income taxes in 2018, and Musk's true tax rate from 2014 to 2018 was only 3%.
Musk's compensation over the past three years is worth about $33 billion.
Here we should be clear that Musk does not receive any company and cash rewards at Tesla, his entire income comes from 12 batches of stock options directly linked to the company's market value and performance, after meeting the conditions, Musk can use a very low price to buy about 1% of Tesla equity at a very low price, that is, 12% of the equity, from the recent data, Musk's first 6 batches of options can be exercised, which is equivalent to obtaining 6% of the equity. So although Master's company in Tesla for 20 years was 0 salary, he was at the top of the list of the world's highest-paid CEOs of the year with $6.68 billion.
Here we understand why some rich people only receive a few dollars a year of salary, right?
In fact, it is well known that the rich in the United States are very good at tax avoidance.
According to public IRS figures, the 25 richest Americans— Buffett, Gates, Bezos, Musk, and Zuckerberg—added more than $400 billion in wealth during the five-year period from 2014 to '18, but they paid a total of $13.6 billion in federal income taxes in five years, compared with an average of 3.4 percent over the previous 15 years.
We also know that a very important tax avoidance method for these rich people is to do charity. But how exactly do they work?
These rich people can avoid taxes through charitable foundations in various guises, and these foundations can use the model of charitable trusts to transfer surplus assets to non-charitable beneficiaries, who are often the descendants of the rich, so that they can avoid the high inheritance tax in the United States.
Buffett announced that he would donate 99% of his wealth to charity, and although Buffett's wealth increased by $24.3 billion in five years, it only paid $23.7 million in taxes, and the effective tax rate was only 0.1% of the lowest among the rich.
In fact, China's Internet tycoons have also used similar methods to avoid taxes, as we all know, most Internet companies are listed in Hong Kong or overseas, and the top-level control structure they use is generally companies registered in tax havens such as the Cayman Islands or the British Virgin Islands. Then use charitable foundations and family trusts registered in tax havens to hold shares, and better tax avoidance effects can be achieved.
Seeing this, who does everyone think of?
Back to today's world's richest man, Musk avoided $2.26 billion in taxes this year through just one move.
For the option that Musk exercised this time, according to the ordinary income to collect 37% federal income tax, plus 13.3% California state tax, as well as the United States to increase the 3.8% net investment tax on high-income people, these taxes, combined with the comprehensive tax rate of 54.1%, then Musk's batch of more than 20 million options when it exercises, the tax that needs to be paid is as high as $12.3 billion.
Speaking of this option, Musk also launched a vote on Twitter, asking netizens whether they should sell 10% of his Tesla stock?
In the end, he received 58% of the votes of more than 3.5 million votes, which means that he was supported to reduce his shares.
On November 8, the day after the vote, Musk exercised the option at $6.24, bought 2.15 million shares of Tesla stock, and then sold 930,000 shares at a market price of more than $1,100, probably cashing out $1.1 billion.
On November 10, Musk sold another 3.59 million shares, and on the 12th, he sold another 1.2 million shares. Roughly a total of nearly $7 billion cashed out, although Musk cashed out a lot, but on November 10, Musk sold another 3.59 million shares, and on the 12th, he sold another 1.2 million shares. Tesla's stock price has fallen sharply, and by the close of the 12th, the stock price has fallen to $1,033, and the market value of more than $200 billion has evaporated.
It is equivalent to falling three Weilai, falling so much, Musk did not sell more stocks, his loss is actually not small.
Why did Musk suddenly choose to sell his shares on a large scale?
In fact, the main reason is that Musk's exercise option was obtained in 2012, allowing him to buy stocks at a low price of $6.24. But he still has more than 20 million shares of options that expire by August next year.
If he doesn't buy these stocks before expiration, it will be invalidated, and if he converts the options into stocks, it will need to pay a large tax, and in order to raise these taxes, Musk will need to sell some of the shares to cash out.
So Musk launched a fan vote on Twitter mainly for the show, in fact, in the recent period of time, no matter what, he is going to sell the stock, and Musk sold the stock window period, is to avoid the time near the earnings release period,
Such a large reduction usually needs to start at least two quarters before the option expires, so in November this year, when Tesla's stock price hit a record high, he immediately offered to sell the stock.
The United States has a tax called capital gains tax, which means that the appreciation of assets is taxed, such as stock houses you buy low and sell high.
Holders of assets under the current tax law in the United States are only required to pay taxes after they have realized their gains, so even if Musk's stock rises more, he does not have to pay taxes as long as he does not sell.
That's why Musk didn't pay taxes for a whole year in 2018, and if he had been holding stocks for more than a year when he sold them, the federal tax rate could be reduced from 37% to 20%.
Speaking of which, everyone can see it clearly. Why does Musk usually not receive compensation, as long as the term of stock options is very long, the advantage of this is that even if he receives a huge amount of options, he does not need to pay income tax, can delay for a very long time, and wait until many years later when the option is exercised to pay taxes.
He has a large number of stocks, usually do not move, no matter how much they rise, they do not have to pay taxes, but they need to pay when they are sold.
Musk currently holds more than 80 million exerciseable stock options, this time he has to deal with the bid price of 22.8 million options obtained in 2012, we mentioned earlier only $6.24, and now the stock price is more than $1,000, assuming that each option exercise, it can earn $1,000 on the book, the total gain can reach $22.8 billion.
The tax he said he had to pay was as high as $12.3 billion, so Musk naturally avoided taxes.
Musk's approach is to move, one way is to move to a place with a lower tax rate, and going to Texas is a good option, where there are no state taxes.
Musk sold all his villas in California last year and has moved to Texas this year.
In October of this year, Musk also announced at Tesla's shareholder meeting that he would move the company's headquarters from California to Austin, the capital of Texas.
If Musk sells stocks that can be taxed in Texas, we can calculate how much tax he can save, and in Texas, he will save 13.3% of the state tax, only paying 20% long-term capital gains tax and 3.8% net investment tax.
Moving alone can save $2.26 billion, making it a good deal.