3 Tax Advantages You Can Learn From Elon Musk
Written by
Daria Uhlig
Edited by
Ashley Barnett
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Despite being the world’s wealthiest person, Elon Musk’s taxes are pretty simple. In a 2021 interview16:14] with executives from The Babylon Bee, Musk said he has no offshore accounts or tax shelters. What he does have is billions and billions of dollars worth of stock and other assets that he leverages to reduce his tax liability.
Here are three tax advantages you can learn from Musk.
Save on Property Tax
“My primary home is literally a ~$50k house in Boca Chica / Starbase that I rent from SpaceX,” Musk wrote in a 2021 Tweet.
You might not have a company that can buy a house for you to rent, but you can slash your property tax bill, not to mention utility, insurance, and repair costs, by opting for an extremely modest home. Musk’s is a tiny prefab measuring about 400 square feet.
Reduce Your Tax Rate
Elon Musk is the wealthiest person on Earth, but not because of his salary. In fact, he draws no salary from Tesla — 100% of his compensation comes from stock.
Wages are the least tax-friendly income you can earn, Jaspreet Singh explained in a recent YouTube video. Business revenue and income from long-term passive investments are subject to fewer taxes, plus you get more deductions.
Musk’s Tesla shares generate no taxes unless he sells them. Assuming he holds them for over a year, the proceeds are taxed as long-term capital gains, which have a maximum tax rate of 20%, in most cases — 17% less than the highest tax rate for ordinary income.
Relying less on wage income and more on business revenue or investment income, you’ll pay less tax on the money you receive.
Buy, Borrow, Die
Elon Musk would owe a fortune in taxes if he sold stock every time he needed a large cash infusion. He gets around that by borrowing against his assets. In 2020, for example, he put up $57.7 billion worth of Tesla stock as collateral for personal loans, according to a ProPublica report. That’s tax-free money he could use however he wanted.
Thanks!
As The New York Times reported in response to ProPublica’s investigation, the super-wealthy use these loans as part of a strategy known as “buy, borrow, die” because the loans aren’t usually paid off until the borrower dies.
Borrowing against assets is much less risky for a multibillionaire than it is for the average consumer, but you might be able to do it. The proceeds of a loan against a cash-value life insurance policy, for example, are not taxable, and you might not need to repay it as long as you keep your policy active. But think twice, and perhaps consult a financial advisor or tax professional before risking assets by borrowing against them.
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