Rick recently received 500 shares of restricted stock from his employer, Crazy C

Question

Rick recently received 500 shares of restricted stock from his employer, Crazy Corporation, when the share price was $5 per share. Rick's restricted shares vested three years later when the market price was $12. Rick held the shares for a little more than a year after vesting and sold them when the market price was $15. Assuming that Rick made an election under section 83(b) when the stock was granted, what is the amount of Rick's income inclusion and tax liability upon the sale of the stock? Assume an ordinary income tax rate of 28% and long-term capital gains rate of 15%.

Explanation / Answer

Amount to be included in Rick's income at the time of sale = 500 * (15-5) = $5000

Tax Liablity on sale = 5000*15% = $750

Please note: $5*500 would already have been included in Rick's income at the time of grant of shares as he opted election under section 83(b) so this is dedcuted on actual sale of shares. So tax will be charged at 15% i.e. Long term capital gains rate.

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