Question

On January 1, year 1, Dave received 1,000 shares of restricted stock from his employer, RRK Corporation. On that date, the stock price was $7 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 $30 per share when his shares vest and will be $40 per share when he sells them. Assume that Dave’s price predictions are correct and answer the following questions:

a. What are Dave’s taxes due if his ordinary marginal rate is 32 percent and his long-term capital gains rate is 15 percent?

	Taxes Due Grant date Vesting date Sale date

b. What are the tax consequences of these transactions to RRK?

	Tax Consequences Grant date Vesting date Sale date

Answer 1

A) Tax Dues of Dave

Tax Dues on Grant Date will be as follows:

Particulars	Amount
1. Shares Acquired (No's)	1000
2. Fair Market value of Shares	$7
3. Ordinary Income in Grant Date [(1) X (2)]	$7,000
4.Ordinary marginal Tax Rate	32%
Tax Due [(3) X (4)]	$2,240

Tax dues on vesting date will be Zero because dave has opted cgain 83(b) election.

Tax Dues on Sale Date will be as follows:

Particulars	Amount
1.Amount Realized [1000 shares x $ 40 per share]	$40,000
2.Less: Ordinary income already taxes on grant date	$7,000
3.Long Term Capital Gain	$33,000
4.Long term capiatl gain tax rate	15%
Tax due [(3) x (4)]	$4,950

Summary

Particulars	Tax Due
Grant Date	$2,240
Vesting Date	Nil
Sale Date	$4,950

B) Tax consequenses of RRK

RRK will receive a tax benefit of $2450 on the grant date, which is calculated as follows:

Particulars	Amount
1. Shares Acquired	1000
2. FMV on Grant Date	$7
3. Ordinary Deduction	$7,000
4.Ordinary Marginal Tax Rate	35%
5. Tax Due	$2,450

RRK receives no benefit on the vesting date or when Dave sells the shares.