Todd recently retired from Fox, Inc., a national plastics supplier. When he reti

Question

Todd recently retired from Fox, Inc., a national plastics supplier. When he retired his stock bonus plan had $10,000 shares of Fox, Inc. stock. The company took deductions equal to $20 per share for the contributions made on Todd’s behalf. At retirement, Todd took a lump-sum distribution of the employer stock. The fair market value of the stock at distribution was $35 per share. Six months after distribution, Todd sold the stock for $40 per share. What amount was subject to ordinary income tax on Todd’s tax return at the date Fox, Inc. contributed the stock to the plan?

Explanation / Answer

Todd will not be subject to ordinary income at the date the stock is sold. $10,000 [which means he has 500 shares (=10,000/20)] would have been subject to ordinary income tax at the date the stock was distributed to Todd. At the date of sale Todd would have had $0 of short-term capital gain and $10,000 (= 500 shares * (40 - 20)) of long-term capital gain (the net unrealized appreciation).

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.