On 1 of January 2013 ABC company anounced Stock options for the CFO at the price

Question

On 1 of January 2013 ABC company anounced Stock options for the CFO at the price of $25 a share - 1000 shares. The excersise time is from January 2013 till January 2015. Answer the following questions in details;

1. These are NSO and he buys them on March 2014 when the marker price is $30 a share and sells them in 2016 at $40 a share. What are the tax consiquences for CFO and for the ABC Co.

2. These are ISO and he buys them on March 2014 when the marker price is $30 a share and sells them in 2016 at $40 a share. What are the tax consiquences for CFO and for the ABC Co.

3 These are ISO and he buys them on March 2014 when the marker price is $30 a share and sells them in June 2014 at $40 a share. What are the tax consiquences for CFO and for the ABC Co.

Explanation / Answer

1. In NSO, when CFO excersied his option he has additional taxable income, the amount being the difference between the exercise price and the market value on that date i.e $30-$25= $5*1000 shares = $ 5000 and the ABC Co. is allowed to take a tax deduction equal to the amount the recipient is required to include in his or her income i.e $5000.

When CFO sells that shares in 2016 at $ 40, he has long term capital gain i.e. $40 - $25 = $15*1000 share = $15000 so long term capital gain tax if applicable and for company there is no tax.

2.In ISO, when CFO excersied his option he has additional taxable income, the amount being the difference between the exercise price and the market value on that date i.e $30-$25= $5*1000 shares = $ 5000. and and for company there is no tax

When CFO sells that shares in 2016 at $ 40, he has long term capital gain i.e. $40 - $25 = $15*1000 share = $15000 so long term capital gain tax if applicable and for company there is no tax.

3.In ISO, when CFO excersied his option he has additional taxable income, the amount being the difference between the exercise price and the market value on that date i.e $30-$25= $5*1000 shares = $ 5000. and and for company there is no tax

When CFO sells that shares in 2014 at $ 40, he has short term capital gain i.e. $40 - $25 = $15*1000 share = $15000 so short term capital gain tax applicable and for company there is no tax.

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