Melanie is excited about her new job. the company granted melanie stock options
ID: 2595077 • Letter: M
Question
Melanie is excited about her new job. the company granted melanie stock options entitiling her to purchase 1000 shares of the fcompanys stock for an exercise, or "strike", price of $1 per share- the current trading value of the stock. Melanie can exercise the options after one year. At the end of the year 1, when the share value of the stock. Melanie can exercise the options after one year. At the end of the year 1, when the share value has sky rocketed to $10 per share, Melanie exercised all her options, and acquired 1000 shares. In year 6, when the share price has increased to $35 per share, Melanie decides to sell asll 1000 shares. Melanies ordinary income tax rate for each year is 30% and her tax rate on long term capital gains is 15%.
a. Assumming the options are NQSOs, compute the amount of income, and tax liability that Melanie will report on
i. date of grant
ii. date of exercise
iii. date of share sale
b. Assuming the options are ISOs, compute the amount of income, and tax laibility that melanie will report on
i. date of grant
ii. date of exercise
iii. date of share sale
Explanation / Answer
a)Options are NQSO's
Amount of Income Tax Liability
i) Date of Grant NIL NIL
ii) Date of Exercise $9000 $3000 ($9000*30%) ordinary tax rate
iii) date of Share Sale $25000 $3750($25000*15%) Long term capital gain tax rate
b) Options are ISO's
Amount of Income Tax Liability
i) Date of Grant NIL NIL
ii) Date of Exercise NIL NIL
iii) date of Share Sale $34000 $5100($34000*15%) Long term capital gain tax rate
($35000-$1000)