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Anna35 [415]
3 years ago
13

Jonathan was granted enough nonqualified stock options (NQSOs) to purchase 10,000 shares of Capital, Inc. stock at $10 per share

two years ago. He exercised the options this year when Capital, Inc. stock was $25 per share. Three years later, Jonathan sells the 10,000 shares for $100 per share. Which of the following statements regarding the tax ramifications of Jonathan's transactions are CORRECT?
Capital gains tax is due the year the options are granted to Jonathan.
Jonathan's cost to exercise all of the NQSOs is $50,000.
Jonathan will have a $750,000 capital gain when he sells the stock at $100 per share.
Jonathan will have an additional $150,000 included in his W-2 compensation income, which is a type of ordinary income, subject to payroll taxes this year.
A) I, II, and III
B) III and IV
C) I and II
D) I, II, III, and IV
Business
1 answer:
Furkat [3]3 years ago
8 0

Answer: B. III and IV

Explanation:

Based on the information given, we should note that the capital gain will be:

= $1,000,000 - $250,000

= $750,000

Also, the bargain amount will be calculated as:

= 10000 × ($25 - $10)

= 10000 × $15

= $150,000

We should also note that the statement in option 1 that "Capital gains tax is due the year the options are granted to Jonathan" is wrong. Capital gain will only arise when the shares have been sold, therefore option I is incorrect.

Based on the information above, the answer is option III and IV.

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