Question

On January 1, year 1, Dave received 1,200 shares of restricted stock from his employer, RRK Corporation. On that date, the stock price was $27 per share. On receiving the restricted stock, Dave made the 83(b) election. Dave's restricted shares will vest at the end of year 2. He intends to hold the shares until the end of year 4 when he intends to sell them to help fund the purchase of a new home. Dave predicts the share price of RRK will be $41 per share when his shares vest and will be $47 per share when he sells them. Assume that Dave's price predictions are correct and answer the following questions: (Leave no answers blank. Enter zero if applicable. Round your final answer to the nearest whole dollar value. Enter all amounts as positive values.)

1. What are Dave's taxes due if his ordinary marginal rate is 32% and his long term capital gains rate is 15%

2. If Dave's stock price are correct. what are the tax consequences of these transactions to RRK?

Answer 1

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Answers are highlighted in yellow: Solution: (zero) a) Grant Date $10,368 Vesting date Explanation: Share acquired FMV at grant date 1200 27 Ordinary deduction on grant date Ordinary marginal tax rate Tax due when shares vest 32400 32% $ 10,368 (1200 47) Sale date $3,600 Amount Realized 56400 Adjusted Basis Long term capital gain 32400 24000 Ordinary marginal tax rate 15% $ 3,600 Tax due when shares sold In case of NQSO, As Dave has made g83(b) election, RRK (issuing entitiy) will have tax consequences on the grant date but not on vesting, or sale date. It is standardized. No futher explanation require. b) $6,804 Grant Date Explanation: Share acquired 1200 FMV at grant date 27 Ordinary deduction on grant date 32,400 Ordinary marginal tax rate Tax Benefit or saving on grant date 21% (zero) (zero) $ Vesting date 6,804 Sale Date