Mark received 32 ISOs (each option gives him the right to purchase 19 shares of

Question

Mark received 32 ISOs (each option gives him the right to purchase 19 shares of Hendricks Corporation stock for $27 per share) at the time he started working for Hendricks Corporation five years ago when Hendricks’ stock price was $27 per share. Now that Hendricks’ share price is $40 per share, he intends to exercise all options and hold all of his shares for more than one year. Assume that more than a year after exercise, Mark sells the stock for $40 a share.

What are Mark’s taxes due on the grant date, the exercise date, and the date he sells the shares, assuming his ordinary marginal rate is 30 percent and his long-term capital gains rate is 15 percent?

Grant Date Dollar Amount?

Excercise Date Dollar Amount?

Sale Date

What are Mark’s taxes due on the grant date, the exercise date, and the date he sells the shares, assuming his ordinary marginal rate is 30 percent and his long-term capital gains rate is 15 percent?

Explanation / Answer

a) Mark has no tax consequence on grant date as the option is just granted not exercised b) Exercise date: Mark has no regular income tax on excersice date but recognizes amount for Alternate minimum tax Acquring of shares   A 608 32*19 Exercise Price B $27 Cash for excersice of option D       A*B $16,416 Market price C $40 Shares market Value E      A*C $24,320 Amount for AMT E-D $7,904 Now $7904 is included as income for AMT but as it is within exemption limit so no tax c) Year of sale Mark will recognize long term capital gain Shares acquired 608 Shares market Value E      A*C $24,320 Less: Cash price of shares execrised $16,416 Long term Capital gain $7,904 15% tax on LTCG $1,185.60 Ans 3

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