Suzanne received 20 ISOs (each option gives her the right to purchase 20 shares of stock for $12 per share) at the time she started working, when the stock price was $13 per share. Three years later, when the share price was $23 per share, she exercised all of her options. If Suzanne holds the shares for 10 additional months and sells them when the market price is $30, how much gain will Suzanne recognize on the sale and how much tax will she pay, assuming her marginal tax rate is 35 percent?
What will be an ideal response?
$7,200 and $2,520.
The gain realized is $7,200; $12,000 realized (400 shares × $30) less basis $4,800 (400 shares × $12 exercise price). The tax is calculated as follows: $7,200 × 35% (because she didn't meet the one year from exercise date holding period).
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