Question

padme received 10 isos (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 padme recognize on the sale of the shares and how much tax will she pay assuming her marginal tax rate is 37 percent and her preferential rate is 15%?

Answer 1

Padme will recognize a gain of $1,200 on the sale of the shares and will pay $444 in taxes.

Step-by-step explanation:

To calculate the gain that Padme will recognize on the sale of the shares, we need to subtract the cost of exercising the options from the proceeds of the sale. Padme received 10 options, each allowing her to purchase 10 shares of stock for $8 per share, so the cost of exercising the options is 10 options * 10 shares * $8 per share = $800.

Padme sold all of the shares for $20 per share, so the proceeds of the sale are 10 options * 10 shares * $20 per share = $2,000.

The gain will be the proceeds of the sale minus the cost of exercising the options, so the gain is $2,000 - $800 = $1,200.

To calculate the tax that Padme will pay on the gain, we need to multiply the gain by her marginal tax rate. The tax is $1,200 * 37% = $444.