Elon Musk Hesitates on Timeline for Starlink IPO, QSBS Creates Space for Tax Savings

Starlink QSBS

Elon Musk, the celebrity-status CEO behind Tesla and SpaceX, is already fielding questions about an IPO for Starlink, a division of SpaceX focused on providing satellite-based internet services. The centibillionaire has replied that the company will need to establish a “more predictable cash flow” before going public but indicates that long-time Tesla investors may get preference when Starlink shares become available. 

How Does Starlink Work?

Starlink targets regions where the internet is less accessible, such as rural areas where the typical broadband setup is more difficult. Instead, Starlink links a satellite disk placed on the internet user’s property with satellites in orbit. Their service is currently in beta, operating in 11 different countries via about 1,500 SpaceX satellites. Starlink reportedly plans to launch 12,000 satellites in order to reach continuous global coverage by the fall. SpaceX itself focuses on aerospace manufacturing, space transportation, and communications with the stated goal of ultimately enabling the colonization of Mars.

Confusion Surrounding the Origin of Starlink Going Public

The IPO inquiries may have been prompted by a statement in early 2020 from SpaceX President Gwynne Shotwell, which stated that Starlink could ultimately break off from SpaceX to launch its own initial public offering. Around the same time, Musk made a statement estimating that SpaceX could make as much as $30 billion a year through Starlink. These questions come amid growth in the commercial space industry. Though a number of space startups—such as Virgin Galactic, Astra, and Rocket Lab—have recently gone public by merging with SPACs, a profitable Starlink would be a far different investment opportunity. 

What Investors Should Look For in Companies Similar to Starlink

Well-known company names may draw the most attention initially, but serious investors need to consider every facet of their investment to determine the actual benefit they can reap. For instance, capital gains taxes have been a subject of special attention in recent tax reform, and investors would be wise to stay abreast of these changes, since they may take a sizable slice out of any stock profits. 

Conversely, investment in small businesses tends to come with tax benefits that can offset these deep cuts. When it comes to qualified small business stock (QSBS), federal tax law currently allows an exclusion of up to 100% on capital gains tax on qualifying stock. To learn more about what qualifies as QSBS and how investors can benefit, visit our QSBS Basics page.

This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.

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