new clients, Mr. Mark and his wife Beyonce, who are married individuals, filing
ID: 431802 • Letter: N
Question
new clients, Mr. Mark and his wife Beyonce, who are married individuals, filing jointly, and U.S. citizens. Based on our tax projections, we expect the clients to report adjusted gross incomes of $10M and $40M for 2017 and 2018, respectively. The clients own various assets including cash, publicly traded securities and artwork (investment rather than collectible).
Mark and Beyonce considered themselves to be residents of Texas for 2016 and 2017. Mark started his own Zoo-K sports agency. As one of the directors of the start-up agency, he has been granted non-qualified, restricted stock options at a price of $1 per share. The agency, which is based in California, holds some of its board meetings in California, which Shawn attends. From his home in Texas, he also participates in conference calls pertaining to agency business. In 2016, he attended 20 one-day board meetings in California and participated in 10 conference calls from Texas. Mark exercised 1,000,000 options in 2017. The current fair market value is $5 per share.
In 2018, he and Beyonce are considering buying a second home in Beverly Hills so they can stay there while both of them record new albums in Los Angeles. To fund the albums, he plans to sell his Zoo-K agency stock in 2018 after he has held it for more than a year from time of exercise.
The federal and state income tax consequences of (1) exercising the stock options in 2017 and (2) selling the stock in 2018.
Please provide the answers carefully with resources
Explanation / Answer
There are basically 2 types of stock options – employer stock options and open market stock options. However in this case, Mark has taken his agency stock in the form of employer stock options. He has the stocks in the form of non-qualified restricted stock options. Mark would not face any tax consequences when he got the stocks. He plans to exercise the stock options in 2017 and sell them in 2018.
https://turbotax.intuit.com/tax-tips/investments-and-taxes/how-to-report-stock-options-on-your-tax-return/L3K0l47J2
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