Bob has just been hired by a corporation. His job is not important. What is important however, is that Bob was offered stock as part of his annual compensation package. Bob does not know anything about stock compensation and has asked you how this will be taxed.

Here is what Bob has told you. Bob was granted Restricted Stock Units, also known as RSUs. He was granted 10,000 shares, to vest pro rata over 4 years. The value of the stock at the end of each year is forecasted to be as follows:

Stock Value by Year

Year 1: $10/per share

Year 2: $15/per share

Year 3: $15/per share

Year 4: $20/per share

First question: Bob is not restricted on the stock he vests in. Meaning he can sell his shares once they vest each year. How much tax will Bob pay in total after the end of Year 4 when he vests in his last share of stock if he is subject to a 30% tax rate.

Second question: Assume instead that Bob was awarded 10,000 ISOs (not RSU's), of which his strike price was $10/share. Also assume Bob does not exercise any of his options until the end of Year 4 when he has vested in all 10,000 of them. How much tax will Bob pay when he exercises he right to buy all 10,000 ISO stock options?

Third question: Bob is not restricted on the stock he vests in. Meaning he can sell his shares once they vest each year. How much tax will Bob pay in Year 6 if he sells all the stock for $30/share and is subject to a 30% ordinary tax rate, and a 15% capital gains tax rate.