Maren received 10 nqos (each option gives her the right to purchase 7 shares of stock for $8 per share) at the time she started working

Maren received 10 nqos (each option gives her the right to purchase 7 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 $18 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?

Answers

Answer and Explanation:

The computation of the gain recognized and the tax that should be paid is shown below

Sale of share(10 × 8 × $22) $1,760

Less: basis (10 × 8 ×$15) $1,200

The gain realized $560

Now the tax would be

= $560 × 15% preferential rate

= $84

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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

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