Question

Maren received 10 NQOs (each option gives her the right to purchase 8 shares of stock for $8 per share) at the time she started working when the stock price was $6 per share. When the share price was $15 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $22 per share. How much gain will Maren recognize on the sale of the shares and how much tax will she pay assuming her marginal tax rate is 35 percent? Multiple Choice $0 gain and $0 tax. $560 gain and $84 tax. $560 gain and $196 tax. 1120 gain and $168 tax.

Answer 1

Answer:

Option (b) is correct.

Explanation:

Sale of share = NQOs received × No. of shares × Selling price per share

                      = 10 × 8 × $22

                      = $1,760

Gain realised:

= Sale of share - Basis

= $1,760 - [NQOs received × No. of shares × Selling price per share at $15]

= $1,760 - [10 × 8 × $15]

= $1,760 - $1,200

= $560

Tax paid = Gain realised × preferential rate

               = $560 × 15%

               = $84