On January 1, year 1, Dave received 1,000 shares of restricted stock from his em
ID: 2582047 • Letter: O
Question
On January 1, year 1, Dave received 1,000 shares of restricted stock from his employer, RRKCorporation. On that date, the stock price was $7 per share. On receiving the restricted stock, Dave made the §83(b) election. Dave’s restricted shares will vest at the end of year 2. He intends to hold the shares until the end of year 4 when he intends to sell them to help fund the purchase of a new home. Dave predicts the share price of RRK will be $30 per share when his shares vest and will be $40 per share when he sells them. Assume that Dave’s price predictions are correct and answer the following questions: (Enter all amounts as positive values. Leave no answers blank. Enter zero if applicable.)
a. What are Dave’s taxes due if his ordinary marginal rate is 30 percent and his long-term capital gains rate is 15 percent?
b. What are the tax consequences of these transactions to RRK if its marginal rate is 35 percent?
Taxes Due Grant date Vesting date Sale dateExplanation / Answer
a.
Explanation:
Dave's tax consequences on the grant date is that he will recognize $7000 of ordinary income and pay taxes of $2100 which is calculated as below:
Dave will owe no tax on the vesting date since he made the §83(b) election.
Dave will owe $ 4950 on the sale date which is calculated as below:
b. RRK will receive a tax benefit of $2450 on the grant date, which is calculated as follows:
RRK receives no benefit on the vesting date or when Dave sells the shares.
Taxes Due Grant Date $ 21000 Vesting Date 0 Sale Date $ 4950