Asked by giannah alessandra on Jul 20, 2024
Verified
An employer issues Johnny 2,000 stock options in recognition of a very good year.These particular options vest after 24 months from the date of issuance with an exercise price of $21.00 per share.After 24 months,these shares trade in the open market at $25.00 per share,and Johnny decides to exercise his 2,000 options,generating a gain of $8,000 (minus transaction fees) .Which statement best describes Johnny's tax situation pursuant to these gains?
A) Because these options were a bonus provided by the employer,there are no tax consequences attributable to Johnny.
B) Because these shares are "under water," Johnny's employer is responsible for any taxes on the gains.
C) Johnny will have to pay taxes based on the corporate tax rate.
D) Johnny's gain will be deemed as income,but taxes will be paid at the capital gains rate.
Stock Options
Financial derivatives that give the holder the right, but not the obligation, to buy or sell shares of a company at a specified price before a certain date.
Open Market
An economic system in which prices for goods and services are determined by unrestricted competition between privately owned businesses.
Capital Gains Rate
The tax rate applied to the profit from selling an asset that has increased in value.
- Recognize the tax implications for employees receiving stock options as part of performance incentives.
Verified Answer
Learning Objectives
- Recognize the tax implications for employees receiving stock options as part of performance incentives.
Related questions
In 2018, a Company Employee Received an Option to Purchase ...
Alyssa, the Financial Officer at Doone & Smithfield, Encourages the ...
One Reason That Companies Issue Stock Options Is to Attempt ...
Wealth Taxes Are Levied by Cities and Counties on the ...
The Government Uses the Tax System to Collect Revenue and ...