Question

Brad received 20 incentive stock options (each option gives him the right to purchase 30 shares of stock for $12 per share) from his employer. At the time he started working, the stock price was $11 per share. Now that the share price is $25 per share, he exercises all of the options. Two years later Brad sells the stock for $27 per share. How much ordinary income and how much capital gains income will Brad recognize from the exercise of the options and the sale of the stock?

Answer 1

solution
given that
Brad received 20 incentive stock options (each option gives him the right to purchase 30 shares of stock for $12 per share) from his employer.
At the time he started working, the stock price was $11 per share. Now that the share price is $25 per share, he exercises all of the options.
Two years later Brad sells the stock for $27 per share.
NQOs : A nonqualified choice (NQO) is the privilege yet not the commitment to buy offers of an organization, as a rule the choice holder's manager, at a settled cost by a specific date.

At date of give: no duty to alternative holder

At date of activity:

alternative holder saddled is on contrast between equitable estimation of stock on date of activity and exercise cost

Gain = 25*30*20 - 10*30*20

= 15000 - 6000

= 9000

In this way, premise here is 6000

At date of offer of fundamental stock :

alternative holder saddled on distinction between honest estimation of stock on date of offer and honest estimation of stock on date of activity

Gain = 27*30*20 - 25*30*20

= 16200 - 15000

1200

In this way, premise here is 15000