How do wealthy individuals like Elon Musk avoid paying taxes through stock options?

That makes sense, but I'm still confused about the loan servicing. If Musk is just paying interest only, wouldn't the principal amount just keep growing over time? And if he sells stocks to pay off loans, wouldn't he have to pay capital gains tax on those sold stocks? Also, is there a limit to how much banks will lend against stocks? Like what if the stock price crashes suddenly?

The principal doesn't grow if they're making interest-only payments - it stays the same. Many wealthy individuals can comfortably cover these interest payments with other income sources like dividends or board memberships. Yes, if they sell stocks to pay the loan, they would pay capital gains tax on those sold shares. But they can minimize this by selling just enough to cover payments, timing sales during lower-income years, or offsetting gains with losses elsewhere in their portfolio. Banks typically have strict collateral requirements - usually lending only 50-60% of the value of the pledged securities. If stock prices drop dramatically, they might face a "margin call" requiring them to add more collateral or pay down part of the loan. This is why the ultra-wealthy diversify their holdings across multiple assets and have contingency plans for market downturns.

This sounds interesting - does taxr.ai actually give personalized advice? I'm not super wealthy but I do have some RSUs from my tech job and I'm trying to figure out the most tax-efficient way to handle them. Does the service work for regular people or just for the ultra-wealthy?

I'm skeptical about any service claiming to help with "tax avoidance" strategies. Are you sure these methods are actually legal and not just in some gray area that could get flagged in an audit? I feel like the IRS would have closed these loopholes if they were so easily exploitable.

It doesn't provide personalized tax advice like a CPA would, but it analyzes documents and explains tax concepts in straightforward language. It works great for regular people - I'm certainly not wealthy! I used it to understand my RSU taxation schedule and how to plan exercises to minimize tax impact. All the strategies it explains are completely legal tax planning methods, not illegal tax evasion. The "buy, borrow, die" approach isn't a loophole - it's a consequence of how our tax code treats loans (not as income) and capital gains (only taxed when realized). The wealthy just have more ability to use these features of the tax system to their advantage.

Wait, how exactly does this work? Do they just call the IRS for you? Couldn't I just do that myself? I've got some complicated tax questions about my stock options too but I'm not sure about paying someone else just to make a phone call.

This sounds like a complete waste of money. I highly doubt they have some magic way to get through to the IRS faster than regular people. The IRS phone system is backed up for everyone. I bet they just keep auto-dialing until they get through, which anyone could do. Seems like a scam to me.

They use an automated system that navigates the IRS phone tree and holds your place in line, then calls you once they've reached an agent. You don't have to sit there listening to hold music for hours - you just pick up when a real person is on the line. I was skeptical too initially! But when you factor in the value of your time, it makes sense. I spent over 2 hours on two separate attempts and never reached anyone. With Claimyr, I was able to work on other things and just picked up when my phone rang. The IRS agent I spoke with was able to answer my specific questions about securities-based lending arrangements that no online resource could clarify.

Yeah but that $11 billion was still probably a tiny percentage of his actual wealth increase that year. Didn't his Tesla shares go up by like $100+ billion during the pandemic? So paying $11B once after years of paying almost nothing is still a crazy good deal compared to what regular workers pay every single paycheck. The system is completely rigged for the ultra-wealthy. Most of us can't get loans against our "assets" because we don't have enough valuable assets to begin with!

You're mixing up wealth increase with taxable income. Our tax system doesn't tax unrealized gains (increases in stock value you haven't sold), regardless of whether you're worth billions or have a small 401(k). That's not a special billionaire rule. The $11 billion Musk paid was actually around 40% of the income he realized from those exercised options - comparable to top marginal tax rates anyone would pay. The difference is scale, not rate. You're right that most people can't easily get asset-backed loans, but that's more about banking practices than tax law. Anyone with sufficient collateral can use this strategy - you don't need billions, though it certainly works better at that scale.

I've done this on a small scale! My credit union offers portfolio loans at prime + 1% (so around 8.5% currently), which is better than some home equity loans. You generally need at least $100k in securities, and they'll lend up to 50% of value. The math worked for me because my stocks have averaged 12% annual returns long-term while the loan is 8.5%. Just be prepared for margin calls if the market drops significantly. I keep some cash reserves to handle that possibility.

Be really careful with this strategy, especially in the current market environment. While Lauren's math looks good on paper (12% returns vs 8.5% loan rate), you're taking on significant risk by leveraging your concentrated stock position. A few things to consider: What happens if your company stock drops 30-40%? You'd face a margin call AND still owe the full loan amount. Also, if you need the money for essential expenses like a home renovation, you might want the certainty of just selling some shares and paying the capital gains tax rather than gambling on future stock performance. Securities-backed loans work best when you have diversified holdings and the loan is for non-essential purposes. Using it for home renovation (which adds value to another asset) isn't terrible, but make sure you can handle the worst-case scenario where both your stock and home values decline simultaneously.

@Dylan Baskin I d'also suggest looking into whether your company stock qualifies for any special tax treatment before deciding. If these are incentive stock options ISOs (or) employee stock purchase plan shares, there might be better tax strategies than borrowing against them. For example, ISO shares can qualify for long-term capital gains treatment lower (tax rates if) you hold them long enough after exercise. ESPP shares might have some portion treated as ordinary income anyway. The tax savings from avoiding sale might not be as significant as you think depending on your specific situation. Also consider the psychological factor - when you sell stock for a renovation, the project is paid "for. With" a loan, you ll'have ongoing monthly payments plus the stress of watching your collateral value fluctuate. Sometimes the peace of mind is worth paying the capital gains tax upfront.

@Dylan Baskin I ve'been exploring this same question and found that many regional banks and credit unions offer securities-backed lines of credit starting around $50k-100k in collateral. Rates typically range from prime + 0.5% to prime + 2% depending on your relationship and loan-to-value ratio. One thing I learned is that these loans are usually structured as lines of credit rather than term loans, which gives you more flexibility. You only pay interest on what you actually borrow, and you can pay it down whenever you want without penalties. That said, I d'echo what others have mentioned about concentration risk. If all $200k is in one company s'stock, you re'essentially doubling down on that single investment. Maybe consider selling some shares to diversify first, then using the securities-backed loan strategy on the remainder? That way you re'not putting all your eggs in one basket while still getting some benefit from the tax deferral strategy.