Question

Maren received 12 NQOs (each option gives her the right to purchase 7 shares of stock for $10 per share) at the time she started working when the stock price was $8 per share. When the share price was $20 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $23 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 37 percent?

Answer 1

Answer: $252 Gain and $93.24 Tax.

Explanation:

To calculate her gain, the gain she accrued from selling the shares AFTER exercising the options shall be used to calculate,

= Sales Price - Price when exercised

= 23 - 20

= $3

Given that she received 12 NQOs with each giving her the right to purchase 7 shares we have,

= 3 * 12 * 7

= $252

Maren realized a gain of $252.

Subject to a tax rate of 37% we have,

= 252 * 0.37

= $93.24

$93.24 is Payable in tax by Maren.