The Money Mustache Community

Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Lauran75 on August 08, 2018, 09:13:18 AM

Title: Tesla question
Post by: Lauran75 on August 08, 2018, 09:13:18 AM
I inherited a decent number of TSLA shares a bit over 6 years ago. In the last 3 years I have sold about 70% of them. The remaining amount still equal a fairly large percentage of my assets. (Roughly 15%)

I've been selling it slowly to try to limit the tax consequences (cost basis of under $35 for most of it - today it is about $377.)

My DH and I are just in the income bracket where we have no long term capital gains tax.

So ... I have been reading about what it means when a company goes private. From what I am understanding, whichever company buys it out to make it private, usually pays double the stock price. Musk is saying $420 is where he'd like to be at to go private. That means $840 per stock potentially.

It appears that you also have the option to NOT sell, but stay invested in a company once it's private.

I'm wondering what kind of tax consequences this would have for us? At $820 per stock, it would put us up at least one, if not two tax levels. (I do know that it would be taxed on a graduated basis, so some would still be at 0%, some at the next level, and possibly some at the next level.)

If we kept it invested - how would that work tax wise? How would we get our money out later?

I'm also wondering if it might be better to just get completely out while it's going up in case this whole thing with Musk musing about going private backfires - even if it means a large tax bill this year. *

*Could we get penalties for owing a lot more in taxes than we paid in due to capital gains tax?
Title: Re: Tesla question
Post by: FIPurpose on August 08, 2018, 09:49:51 AM
I doubt Tesla would make it to $820 to go private. To do your risk/reward analysis, just see if the additional CG taxes outweigh the possible downside risk. If you believe the stock price will be consistent or go up through January of next year, then it is better to divide the sales into the 2 years.

There is no promise that Musk will succeed in going private, but Tesla stock is already a overpriced, and my guess is that there will be a number of people who will be happy to dump there stock at +10% to allow the company to go private.
Title: Re: Tesla question
Post by: ShoulderThingThatGoesUp on August 08, 2018, 10:16:22 AM
You should sell your shares because they’re 15% of your net worth. I’m a Tesla fan but I’m not a individual stock investor.
Title: Re: Tesla question
Post by: Lucky Penny Acres on August 08, 2018, 10:19:00 AM
Buyouts usually occur at a price just above the then current market price.

The buyout (if it happens) would likely be at a price of ~$420 per share - a bit higher than the current market trading price, but not double at ~$800 per share.
Title: Re: Tesla question
Post by: frugaliknowit on August 08, 2018, 11:31:20 AM
From where do you deduce this:  From what I am understanding, whichever company buys it out to make it private, usually pays double the stock price. Musk is saying $420 is where he'd like to be at to go private. That means $840 per stock potentially.
Title: Re: Tesla question
Post by: FIPurpose on August 08, 2018, 11:41:30 AM
From where do you deduce this:  From what I am understanding, whichever company buys it out to make it private, usually pays double the stock price. Musk is saying $420 is where he'd like to be at to go private. That means $840 per stock potentially.

Yep if there was going to be an $840 buyout, the stock would already be in the 700's. You see it still in the 370's because it's gambling whether there will actually be a buyout at 420. Sounds like you don't understand how buyouts work and should probably sell since you don't have enough knowledge in the investment itself or in general.
Title: Re: Tesla question
Post by: Lauran75 on August 08, 2018, 12:09:00 PM
I doubt Tesla would make it to $820 to go private. To do your risk/reward analysis, just see if the additional CG taxes outweigh the possible downside risk. If you believe the stock price will be consistent or go up through January of next year, then it is better to divide the sales into the 2 years.

There is no promise that Musk will succeed in going private, but Tesla stock is already a overpriced, and my guess is that there will be a number of people who will be happy to dump there stock at +10% to allow the company to go private.

I do agree that the stock is overpriced. Every time it starts going down I get a little nervous, but it seems to skyrocket again a few months later. I sold a bunch of shares at $320, then just a month later it was back to the $350s.

We'd have a $400 loss of the tax saver's credit, plus whatever the CG would work out to on it.

If it is just a 10% hike on the current stock value when going private, then that's not such a big deal (tax wise). Doubling the price seemed weird to me - but that is what several articles said (from what I understood of it.)

Thanks.
Title: Re: Tesla question
Post by: Lauran75 on August 08, 2018, 12:20:29 PM
You should sell your shares because they’re 15% of your net worth. I’m a Tesla fan but I’m not a individual stock investor.

I'm not a fan of individual stock investing either. I have all my other investments in index funds or cash. When I inherited these stocks, they were only worth maybe $5000, and not a large portion of my assets. I also made a promise to my brother that I wouldn't touch them for at least 3 years. By the time 3 years had passed, that $5000 had turned into almost $150k. So since then I've been selling them here and there, trying to minimize tax consequences.
Title: Re: Tesla question
Post by: chasesfish on August 08, 2018, 04:35:12 PM
Sell that stock immediately.  If you have a specific infatuation with Tesla, drop it down to 5% of your net worth.

The stock is at a crazy-high valuation and the company has yet to prove it can really make money.  I'd sell it all, but that's your decision.  Consider it a won lotto ticket and move on.
Title: Re: Tesla question
Post by: Lauran75 on August 09, 2018, 09:24:13 AM
Sell that stock immediately.  If you have a specific infatuation with Tesla, drop it down to 5% of your net worth.

The stock is at a crazy-high valuation and the company has yet to prove it can really make money.  I'd sell it all, but that's your decision.  Consider it a won lotto ticket and move on.

I sold all but 100 shares of it this morning at $365.55 - basically all the stocks that were in my IRAs, plus $20k worth in my taxable account. Selling the remainder would give us a $5000 tax bill - DH and I are in discussions about whether to bite the bullet or not on that.
Title: Re: Tesla question
Post by: chasesfish on August 09, 2018, 10:02:30 AM
Do you donate to charity at all?  You could always consider a donor advised fund.

Otherwise I might consider stacking some sell orders so you can sell 10-20 shares each time it goes up $10 - $15 in price.
Title: Re: Tesla question
Post by: Lauran75 on August 09, 2018, 12:20:14 PM
Do you donate to charity at all?  You could always consider a donor advised fund.

Otherwise I might consider stacking some sell orders so you can sell 10-20 shares each time it goes up $10 - $15 in price.

I donate to my church, my DH does not ..

I'll have to look into stacking sell orders. I tried doing something where I had a sell order if it reached a certain price, but it didn't work. So I'm not sure what I did wrong. (This was a about a year ago, so I don't remember exactly what I tried.)
Title: Re: Tesla question
Post by: robartsd on August 09, 2018, 01:48:15 PM
I inherited a decent number of TSLA shares a bit over 6 years ago. In the last 3 years I have sold about 70% of them. The remaining amount still equal a fairly large percentage of my assets. (Roughly 15%)

I've been selling it slowly to try to limit the tax consequences (cost basis of under $35 for most of it - today it is about $377.)

My DH and I are just in the income bracket where we have no long term capital gains tax.

...

I'm also wondering if it might be better to just get completely out while it's going up in case this whole thing with Musk musing about going private backfires - even if it means a large tax bill this year. *

*Could we get penalties for owing a lot more in taxes than we paid in due to capital gains tax?
I'd keep selling off over time at this point. Look at the bright side - more than 15% of your net worth is inherited, taxes are only on the gains, capital gains won't negatively impact your ordinary income taxation. First world problem to be sure.

Whatever you liquidate above your zero capital gains limit will have a 15% capital gains tax associated with it (MFJ you'd have to get income over $479k to hit 20% capital gains)- not that big of a deal. As long as your withholding this year covers 100% of last year's tax liability, you are in a safe harbor as far as penalties go. You could always estimate the capital gains tax after the sale and send in the estimated tax payment to be sure you're safe.

https://www.irs.gov/faqs/estimated-tax/large-gains-lump-sum-distributions-etc/large-gains-lump-sum-distributions-etc (https://www.irs.gov/faqs/estimated-tax/large-gains-lump-sum-distributions-etc/large-gains-lump-sum-distributions-etc)
Title: Re: Tesla question
Post by: chasesfish on August 09, 2018, 06:24:32 PM
Do you donate to charity at all?  You could always consider a donor advised fund.

Otherwise I might consider stacking some sell orders so you can sell 10-20 shares each time it goes up $10 - $15 in price.

I donate to my church, my DH does not ..

I'll have to look into stacking sell orders. I tried doing something where I had a sell order if it reached a certain price, but it didn't work. So I'm not sure what I did wrong. (This was a about a year ago, so I don't remember exactly what I tried.)

Who do you use for the brokerage?   You're specifically setting a sell order, limit price, and set it as "Good Til Cancelled".  Most brokers default to "day" instead of good until cancelled.  I'd just sell it off in 20 share increments for every $5 it goes up.  Congrats on the inheritance though, as others have said, this was a pleasant contribution to your net worth
Title: Re: Tesla question
Post by: Lauran75 on August 10, 2018, 01:15:22 PM
I inherited a decent number of TSLA shares a bit over 6 years ago. In the last 3 years I have sold about 70% of them. The remaining amount still equal a fairly large percentage of my assets. (Roughly 15%)

I've been selling it slowly to try to limit the tax consequences (cost basis of under $35 for most of it - today it is about $377.)

My DH and I are just in the income bracket where we have no long term capital gains tax.

...

I'm also wondering if it might be better to just get completely out while it's going up in case this whole thing with Musk musing about going private backfires - even if it means a large tax bill this year. *

*Could we get penalties for owing a lot more in taxes than we paid in due to capital gains tax?
I'd keep selling off over time at this point. Look at the bright side - more than 15% of your net worth is inherited, taxes are only on the gains, capital gains won't negatively impact your ordinary income taxation. First world problem to be sure.

Whatever you liquidate above your zero capital gains limit will have a 15% capital gains tax associated with it (MFJ you'd have to get income over $479k to hit 20% capital gains)- not that big of a deal. As long as your withholding this year covers 100% of last year's tax liability, you are in a safe harbor as far as penalties go. You could always estimate the capital gains tax after the sale and send in the estimated tax payment to be sure you're safe.

https://www.irs.gov/faqs/estimated-tax/large-gains-lump-sum-distributions-etc/large-gains-lump-sum-distributions-etc (https://www.irs.gov/faqs/estimated-tax/large-gains-lump-sum-distributions-etc/large-gains-lump-sum-distributions-etc)

Thank you - I think our withholding should cover last year's 100%. I had a small raise, but also increased my 457 contributions - so taxable income should be about the same.
Title: Re: Tesla question
Post by: Lauran75 on August 10, 2018, 01:23:51 PM
Do you donate to charity at all?  You could always consider a donor advised fund.

Otherwise I might consider stacking some sell orders so you can sell 10-20 shares each time it goes up $10 - $15 in price.

I donate to my church, my DH does not ..

I'll have to look into stacking sell orders. I tried doing something where I had a sell order if it reached a certain price, but it didn't work. So I'm not sure what I did wrong. (This was a about a year ago, so I don't remember exactly what I tried.)

Who do you use for the brokerage?   You're specifically setting a sell order, limit price, and set it as "Good Til Cancelled".  Most brokers default to "day" instead of good until cancelled.  I'd just sell it off in 20 share increments for every $5 it goes up.  Congrats on the inheritance though, as others have said, this was a pleasant contribution to your net worth

I'm at Vanguard. I was trying to do something where a certain number of shares would sell if they either reached a certain high number, or a certain low number. But for the lower number, I (thought) I set it to NOT sell if the price it actually sold for was going to be more than $1 less than my low number. (Sorry, I'm not remembering the technical terms for all this right now.)

I had read up on all the terms and ideas behind it and thought I understood it ... but then checked my account one day to see that it had gone more than $5 under my sell price without triggering anything.

My dad would have been so happy to know how well he set me up for life by having listened to someone in our family he didn't get along with all that well. :)
Title: Re: Tesla question
Post by: aceyou on August 10, 2018, 02:13:38 PM
I doubt Tesla would make it to $820 to go private. To do your risk/reward analysis, just see if the additional CG taxes outweigh the possible downside risk. If you believe the stock price will be consistent or go up through January of next year, then it is better to divide the sales into the 2 years.

There is no promise that Musk will succeed in going private, but Tesla stock is already a overpriced, and my guess is that there will be a number of people who will be happy to dump there stock at +10% to allow the company to go private.

You say that like nonchalantly ...but...

-how the heck do you know that, all the people who own the stock think it's priced correctly by definition, or they would sell it.
-People who take your stance and have shorted the stock are down almost 2 billion dollars so far in 2018.

Whether it's true or not, I tend to take the stance that the correct price of any stock is whatever the current price is.  I don't believe myself to have more knowledge than the collective wisdom of every person in the world who owns the stock. 
Title: Re: Tesla question
Post by: FIPurpose on August 10, 2018, 02:40:11 PM
I doubt Tesla would make it to $820 to go private. To do your risk/reward analysis, just see if the additional CG taxes outweigh the possible downside risk. If you believe the stock price will be consistent or go up through January of next year, then it is better to divide the sales into the 2 years.

There is no promise that Musk will succeed in going private, but Tesla stock is already a overpriced, and my guess is that there will be a number of people who will be happy to dump there stock at +10% to allow the company to go private.

You say that like nonchalantly ...but...

-how the heck do you know that, all the people who own the stock think it's priced correctly by definition, or they would sell it.
-People who take your stance and have shorted the stock are down almost 2 billion dollars so far in 2018.

Whether it's true or not, I tend to take the stance that the correct price of any stock is whatever the current price is.  I don't believe myself to have more knowledge than the collective wisdom of every person in the world who owns the stock.

Well The stock jumped 30% on Elon's tweet. There is no proof of funding. And Elon is known for making wildly false claims. The price you currently see is mere speculation and not a reflection of the business. Tesla has been losing money left and right, and I believe the market is still skeptical of Tesla's forecast for their 2018 eps.

I stick with my claim that the current Tesla price is speculation, not a real valuation of the company.
Title: Re: Tesla question
Post by: sokoloff on August 10, 2018, 02:53:57 PM
From where do you deduce this:  From what I am understanding, whichever company buys it out to make it private, usually pays double the stock price. Musk is saying $420 is where he'd like to be at to go private. That means $840 per stock potentially.
You understand incorrectly. $420 is the (in Musk’s fantasies) buyout price, not $840.

Find a reference that is causing you to believe what you believe and share it here, so the collective group can help you understand. (Or in a 0.0001% case, we can learn something.)
Title: Re: Tesla question
Post by: ShoulderThingThatGoesUp on August 10, 2018, 08:34:44 PM
Maybe it’s overpriced, maybe it isn’t; you still don’t want 15% of your investments in one company.
Title: Re: Tesla question
Post by: FIPurpose on August 12, 2018, 12:44:01 PM
http://money.cnn.com/2018/08/11/news/companies/tesla-elon-musk-lawsuit/index.html (http://money.cnn.com/2018/08/11/news/companies/tesla-elon-musk-lawsuit/index.html)

My bet is that Musk was looking to manipulate the price. But there are always rumors of large Tesla investors buying up large sums.
Title: Re: Tesla question
Post by: sokoloff on August 12, 2018, 02:08:32 PM
As a TSLA short from the $350 range, I was annoyed at first, but after a little reflection, it gave me a chance to load up on long-dated puts on Wednesday. Those puts are up 35% already and have a year left to expiration...
Title: Re: Tesla question
Post by: FIPurpose on August 17, 2018, 02:42:56 PM
Tesla's stock falls sharply after Elon Musk's tearful interview

http://money.cnn.com/2018/08/17/news/companies/tesla-stock/index.html (http://money.cnn.com/2018/08/17/news/companies/tesla-stock/index.html)

So with the stock dumping 20% from when this thread basically started, did you sell it all?
Title: Re: Tesla question
Post by: sokoloff on August 17, 2018, 05:00:21 PM
Tesla's stock falls sharply after Elon Musk's tearful interview

http://money.cnn.com/2018/08/17/news/companies/tesla-stock/index.html (http://money.cnn.com/2018/08/17/news/companies/tesla-stock/index.html)

So with the stock dumping 20% from when this thread basically started, did you sell it all?
I think it has farther to fall and don’t plan to cover just yet.

For OP, be sure that your cost basis is as low as you report. It’s likely that you got a step-up in basis during the inheritance process. (The shares would have the FMV basis at the relevant valuation date, which is typically the date of death.)
Title: Re: Tesla question
Post by: Lauran75 on August 28, 2018, 02:44:49 PM
Tesla's stock falls sharply after Elon Musk's tearful interview

http://money.cnn.com/2018/08/17/news/companies/tesla-stock/index.html (http://money.cnn.com/2018/08/17/news/companies/tesla-stock/index.html)

So with the stock dumping 20% from when this thread basically started, did you sell it all?
I think it has farther to fall and don’t plan to cover just yet.

For OP, be sure that your cost basis is as low as you report. It’s likely that you got a step-up in basis during the inheritance process. (The shares would have the FMV basis at the relevant valuation date, which is typically the date of death.)

Thanks - When my dad bought them they were in the $20 range, and when he died they were in the mid $30 range. So, unfortunately the cost basis really is that low.
Title: Re: Tesla question
Post by: acepedro45 on August 29, 2018, 11:14:36 AM
Let me try to clear up three points of confusion I hear.

1. The stock price doesn't double when a company goes private. For a company to go private, the new owner buys up all the individual shares from everyone who holds them (usually through a mechanism called a tender offer). This is usually at a premium to the market price (think 10%-15%) to induce all the holders to sell their shares. It's likely Musk $420 quotation already includes the premium - and the hope to sell at $420 is just a hope, nothing concrete.

2. It's usually a bad idea to retain your shares in the company after it goes private. You could refuse to sell at the proposed price of $420 if it materializes, but then you'd be stuck with a tiny sliver of a company with no liquid market to dispose of it, since most of the other investors will accept the 10-15% premium mentioned above to get rid of their shares.

3. The going-private price (or even any going private deal at all) is not certain. If it was, the shares would already trade for ~$420ish now.