Everyone knows who Elon Musk is. Entrepreneur, investor and founder of some of the world’s leading companies like Tesla, SpaceX and SolarCity. But many people might not know how much taxes Elon Musk paid in 2018. This article will explore that, looking at the kind of taxes he paid, as well as getting perspectives from tax and finance experts.
According to Forbes and Bloomberg, Musk paid over $68 million in taxes in 2018. This figure was mainly comprised of state, local and federal income taxes. As a resident of California, he had to pay the state’s top marginal rate of 13.3 percent (one of the highest in the nation). As an entrepreneur, Musk’s finances are complicated, so his taxes are likely to be much higher than those of average citizens – the first tier of federal income tax kicks in for income earners who make more than $500,000 a year.
Though Musk earned millions upon millions in 2018, most of it was accumulated in the form of stock options and shares from Tesla and other companies, which may have been taxed at different rates according to the Internal Revenue Service (IRS) guidelines. For instance, qualified stock options or ESPP’s, can be charged at a long-term capital gains tax rate of 15 percent instead of the ordinary income tax rate.
We can gain further insights by examining Musk’s 2014 and 2015 tax returns. Back then his income was mainly derived from his Tesla and SpaceX salaries and his stock sales. A large portion of that money was used to pay ordinary income tax, capital gains tax and FICA taxes (Social Security and Medicare). He also had to pay taxes related to self-employment, but since Tesla and SpaceX are not officially ‘owned’ by him, those taxes are estimated to be much lower. Interestingly, as of 2015, Musk also donated $5 million dollars to charities, which might have reduced the amount he owed in taxes.
When talking about taxes and Elon Musk, financial experts are largely in agreement that due to the complicated nature of his finances, the total amount of taxes paid is likely to be much higher. For example, if Musk had to pay taxes for income derived from overseas investments the figures could be substantially bigger.
Moreover, evidence suggests that if Musk’s wealth had continued to grow it’s possible that he could have been liable for an additional 3.8 percent tax on net investment income as part of the new net investment income tax that was implemented in 2013 as part of the Affordable Care Act. It should be noted that while this tax is not applicable to you or me, high-net-worth individuals in the United States must pay it.
In conclusion, Elon Musk managed to pay a huge amount in taxes in 2018. While the exact amount is unclear, the various taxes he paid definitely totaled more than $68 million. The tax system in the US is designed to ensure that high-net-worth individuals pay their fair share, and that is precisely what Elon Musk did.
Income Source
Most of the income Musk earned in 2018 came from his stock options and sale of shares from Tesla and other companies. It is important to note that the income from different sources can be taxed at different rates.
In 2018, the IRS required federal income taxes on the first $500,000 of earnings. Since Musk earned much more than that, he had to pay a special federal income tax rate for high-income earners. For example, qualified stock options and ESPP’s can be charged at a long-term capital gains tax rate of 15 percent. According to Forbes and Bloomberg, Musk likely paid an estimated 20 percent tax rate in 2015, a rate that has since been reduced to 37 percent.
In addition to the federal income tax rate, Musk is also subject to the taxation of his company’s profits in the state and local jurisdictions where they are located. As a California resident, he is also subject to the state’s top marginal rate of 13.3 percent.
Capital Gains Tax
Musk’s taxes in 2018 included capital gains tax. When an individual sells securities for a profit, capital gains tax is the percentage of profit that must be paid to the IRS. Musk paid taxes on the profit he earned when selling his Tesla, SpaceX and SolarCity stock options.
Capital gains tax is calculated differently from ordinary income tax. For example, if an individual makes a $10,000 profit from selling a stock, capital gains tax would be paid on that $10,000, not on the entire value of the stock. The capital gains tax rate for securities held for more than a year is typically 15 percent, but for those held for less than a year the rate is equal to the taxpayer’s ordinary income tax.
Tax Implications of Musk’s Charities
Musk donated $5 million to charities in 2015, and this could have a major impact on his taxes. Charitable donations reduce the income on which taxes must be paid, and the amount donated is counted as a deduction from the income earned.
Typically, donations are deductible at the same rate as the individual’s marginal tax rate. For example, if a taxpayer in the 35 percent tax bracket makes a $1,000 donation, he would receive a $350 deduction. This deduction can significantly reduce the taxes an individual owes.
Net Investment Income Tax
High-net-worth individuals like Elon Musk must pay an additional 3.8 percent Net Investment Income Tax (NIIT). This tax applies to all types of income, including interest, dividend and capital gains income. It also applies to income generated from investments in partnerships, trusts and estates.
The 3.8 percent NIIT applies to all taxable income after deductions, but it is only payable if it exceeds the standard deduction. A single taxpayer making more than $200,000 a year in net taxable income, or married couple filing jointly with more than $250,000 in net income must pay the 3.8 percent NIIT. This is in addition to the other taxes they are liable for.
In summary, the taxation of Elon Musk’s income in 2018 is complex and it is unclear how much he paid in taxes. However, it is certain that he paid millions of dollars in taxes, the vast majority of which were from federal, state, and local income taxes.
