Question

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Exercise 04-12 F is employed by a public corporation. In ye... F is employed by a public corporation. In year 1, F was granted a stock option to acquire 3,000 shares from the treasury of her employer's corporation for $10 a share. At the time of receiving the option, the shares were valued at $12 per share. In year 4, F exercised her option and purchased 3,000 shares for $30,000. At the purchase date, the shares were valued at $13 per share. In year 6, F sold 3,000 shares for $18 per share. What amount is included in F's overall net income for tax purposes in year 6? 12,000

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Answer 1

First lets calculate the tax basis of the shares sold in year 6

Value of shares (Tax Basis) = No of shares x Fair value on the date of excercising the options

= 3,000 x 13 = 39,000 dollars

Sale value of shares = 3,000 x 18 = 54,000 dollars

Therefore capital gain from sale of shares included in the net taxable income in year 6 = Sale value - Tax Basis

= 54,000 - 39,000 = 15,000 dollars

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