‘Live Your Life Like Elon Musk’: Financial Advisors Evaluate Year-End Stock Sales


When Elon Musk polled his Twitter account over the weekend as to whether or not he should sell his Tesla stock, it might have seemed like the typical billionaire entrepreneur bizarre move.

But finance professionals said Musk’s tweet may have been motivated by a desire to employ a smart year-end tax strategy. And they note that investors might be wise to follow the Tesla TSLA,
The CEO is leading in one regard, and takes a close look at their portfolios before December 31st.

Or, as Richard Austin, financial advisor at Massachusetts-based Integrated Partners, put it simply, “Live your life like Elon Musk” – even if you don’t have Musk-level wealth.

At Musk Tweeter, he addressed the issue of unrealized capital gains being “a means of tax evasion” – something that has been discussed as part of tax reform initiatives – and he offered to sell 10% of his Tesla shares . Of the 3.5 million followers who responded, 58% said he should actually sell.

As financial experts have already noted, Musk is actually in a situation where he has almost no choice. corn for sale: he has stock options – on nearly 23 million shares – which will expire in August 2022. And Musk already has signaled his intention sell a “huge block” in the fourth quarter of this year. CNBC noted that Musk’s options would generate a gain of nearly $ 28 billion (based on Friday’s market close) and that the tax bill on the sale could be around $ 15 billion.

Musk could exercise all of his stock options this year. Or he could do it next year. But some finance professionals believe his strategy could be to split the sale over two years as part of a tax move. In the end, Musk is unlikely to save on his overall tax impact – he’s in the higher income bracket, so he’ll have to pay the government all of the freight no matter what over the course of the year. time. But by dividing the sale between 2021 and 2022, he will be able to keep some of those billions a little longer, whatever use he might have in mind.

In other words, it’s about weighing the opportunity cost, said Harry Kirkpatrick, financial planner at Facet Wealth, a virtual financial planning firm. “What could he take this money and invest it in?” Kirkpatrick said.

At the same time, by not selling all of a sudden, Musk may be avoiding pushing Tesla’s stock price so severely, the finance professionals said. As a general rule, any significant sale – or potential sale – by an executive of a company can have a negative effect on the share price. As it stands, Tesla shares have already fallen more than 10% since the close on Friday.

Given this possible scenario of Musk’s thinking, investors should consider the key takeaways when it comes to their own holdings, the professionals said.

First, for investors who specifically have stock options, Austin said the tax implications should always be kept in mind in terms of when to exercise. Investors in lower tax brackets may unintentionally move into higher tax brackets if they all exercise at the same time, he explained, so the laddered approach could work to their advantage. tax.

But if not, professionals said investors should still take a close look at their portfolios before the end of the year. In particular, they may want to sell stocks that have fallen to offset gains made over the past year.

Granted, it is sometimes difficult to part with a long-standing stock, especially if there is any hope of a turnaround. But professionals said investors can always consider buying back those shares later, keeping in mind the IRS’s “wash-sell rule” that requires waiting a certain period of time.

Investors may also consider buying something else in the interim that matches a similar investment objective. “If you sell Intel, you can buy the semiconductor index,” said Clark Kendall, president of Kendall Capital, a Maryland-based company.

The larger point is that owning shares does indeed come with a host of tax issues and concerns, the professionals said. And this is perhaps what motivates Elon Musk’s end-of-year reflection.

“At the end of the day, what he does is a microcosm of what all investors should be doing. They should be making tax-efficient decisions, ”Kirkpatrick said.

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