We're glad you stopped by Grant Date 1 1 Y1 Target gave Mr Rice 100 NQOs with each option providing the right to purchase 10 shares of Target stock at. This page is here to walk you through essential details with clear and straightforward explanations. Our goal is to make your learning experience easy, enriching, and enjoyable. Start exploring and find the information you need!
Answer :
Final answer:
Mr. Rice's taxes due on the grant date, exercise date, and sale date are $0, $17,600, and $11,250 respectively.
Explanation:
Mr. Rice's taxes due on the grant date, exercise date, and sale date can be calculated based on the tax implications of stock options.
- Grant Date: On the grant date (1/1/Y1), there is no tax due as the options have not been exercised yet.
- Exercise Date: On the exercise date (8/1/Y5), Mr. Rice decides to exercise all of his options. The difference between the exercise price ($125/share) and the fair market value of the stock ($180/share) is considered ordinary income. Since he has 100 options, the total ordinary income is calculated as follows: 100 options * 10 shares/option * ($180/share - $125/share) = $55,000. Mr. Rice's marginal tax rate is 32%, so his tax due on the exercise date is 32% of $55,000, which is $17,600.
- Sale Date: On the sale date (10/1/Y6), Mr. Rice decides to sell all of the shares for $200/share. The difference between the sale price ($200/share) and the exercise price ($125/share) is considered a long-term capital gain. Since he has 100 options, the total capital gain is calculated as follows: 100 options * 10 shares/option * ($200/share - $125/share) = $75,000. Mr. Rice's long-term capital gains rate is 15%, so his tax due on the sale date is 15% of $75,000, which is $11,250.
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