Maren received 10 NQOs (each option gives her the right to purchase 10 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 $15 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $20 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?
A) $0 gain and $0 tax.
B) $500 gain and $100 tax.
C) $500 gain and $185 tax.
D) $1,200 gain and $240 tax.

Question

Quizplus · Accepted Answer

The gain realized is $500 (100 shares × $20) less basis (100 shares × $15 exercise price). The tax is calculated as follows: $500 × 20% (preferential rate).

Maren Received 10 NQOs (Each Option Gives Her the Right