Longtime Tesla shareholders could be on the hook for a big bill. In June 2010, Tesla went public with an opening share price of $19. Since then, its stock has climbed to $340 or so — and that’s despite the company continuing to post losses. In 2017, Tesla had a reported a net loss of $2.24 billion, widening from $773 million in 2016.
Nevertheless, $10,000 invested in Tesla when it went public eight years ago would be worth close to $179,000 today. That gain of $169,000, taxed at the top rate of 20 percent, would generate a tax bill of $33,800. And depending on the investor’s total adjusted income, an additional 3.8 percent tax could be due.
While there are company structures and accounting strategies that in theory can help shift shareholders from public to private without taking a tax hit, Tesla’s size pretty much rules that out.
“For Tesla’s size, it’s highly unlikely,” said JR Lanis, a partner at the Los Angeles office of national law firm Drinker Biddle. “If we were talking about a much smaller company, maybe.”
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Beyond the tax implications of staying invested with Tesla through a fund, investors should be aware of other issues.
For starters, it’s unclear exactly how a special fund could be structured in a way that would allow all shareholders to stay if they want, despite Musk’s hope.
“It’s hard to do these types of big-dollar transactions under the best of circumstances,” Lanis said. “If you bring in smaller investors, it’s a coordination nightmare.”
Generally speaking, private companies are allowed to have up to 2,000 regular shareholders without triggering SEC reporting requirements. If a fund were created, it could be a way to sidestep the limit.
However, in that case, experts say the investors would need to be accredited — meaning they need to have at least $1 million in investable assets excluding the value of their home or average yearly earnings of $200,000 ($300,000 for married couples).