Story at a glance:
- Elon Musk paid less than $70,000 in federal income taxes between 2015 and 2017, and he did not pay anything in 2018, according to recent reports.
- He did pay his taxes in 2016 by exercising more than $1 billion in stock options.
- He lives off loans made from his stock options, meaning he doesn’t take a salary from his company.
Elon Musk, the world’s second richest man alive, is said to have paid little to no income tax in recent years living in California, The Hill previously reported.
The explanation, it was discovered last Wednesday, is that the billionaire is living and funding projects off his loans.
Musk is among 25 of the richest men accused of working around the tax system, according to an investigation by ProPublica published last Tuesday.
The list includes Amazon’s founder Jeff Bezos, former New York City Mayor and business philanthropist Michael Bloomberg and American investor and business tycoon Warren Buffett, The New York Times reported.
Musk, known to some as a progressive innovator, reportedly paid less than $70,000 in federal income taxes between 2015 and 2017 and paid nothing in 2018 — despite having a net worth of $152 billion.
One saving grace for the billionaire is that he did pay his taxes in 2016 by exercising more than $1 billion in stock options, The New York Observer reported. However, ProPublica pointed out that his “true tax rate” for the five-year period between 2014 and 2018 is much lower than the national average household at 3.27 percent.
How does Musk avoid paying taxes? The answer is that he borrows money from Tesla without taking a salary from his own company. Through stock options, Musk takes out loans against his company’s shares to fund his Tesla projects, which he does not owe income taxes for, and also deducts some of the interest on those loans on his taxes.
There will be years when he is expected to pay taxes from exercising option grants, but it appears that Musk is operating above board.
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“[The] only time I sell Tesla stock is when my stock options are expiring and I have no choice,” Musk said, responding to a tweet from one of his supporters.
“[By the way], I will continue to pay income taxes in California proportionate to my time in [the] state, which is and will be significant,” he added.
Last year, Musk said he would “sell almost all physical possessions” to finance Tesla and SpaceX, as well as his other ventures.
Just one stipulation on sale: I own Gene Wilder’s old house. It cannot be torn down or lose any its soul.
— Elon Musk (@elonmusk) May 1, 2020
One year later, he did just that.
“Yes, sold my houses except for one in Bay Area that’s rented out for events,” he tweeted. “Working on sustainable energy for Earth with Tesla and protecting future of consciousness by making life multi-planetary with SpaceX. Also AI risk mitigation with Neuralink and fixing traffic with Boring.”
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