Maren received 11 NQOs (each option gives her the right to purchase 12 shares of stock for $9 per share) at the time she started working when the stock price was $7 per share. When the share price was $16 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $21 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?

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Answer:

Maren's basis for the stocks = 132 stocks x $16 = $2,112

18 months later when she sold her stock at $21 per stock, she received $2,772 (= $21 x 12 socks)

Maren's gain = $2,772 - $2,112 = $660

Maren's gain shouldn't be considered as marginal income since it is a capital gain.

I guess we could assume she has to pay the highest rate = 20% x $660 = $132