NON-QUALIFIED On 5/1/X1, XYZ Corp. grants non-qualified stock options for 700 shares of its common stock to Employee A when its stock is trading at $10. The exercise price is $11. These options do not trade. A exercises the options on 6/1/Y1 when the stock is trading at $15. A sells the stock on 10/31/Y3 for $35. Indicate (a) the income (if any) recognized by the employee & (b) the deduction recognized by the employer on (1) grant date, (2) exercise date & (3) sale of stock date under the following assumptions: A. No restrictions apply (i.e. the employee is immediately vested) B. Significant restrictions apply to the stock options. The restrictions lapse on 3/31/Y2 when the stock is trading at $21also indicate the income (if any) recognized by the employee and the deduction (if any) recognized by the employer apply when restrictions lapse. C. In part B, are there any choices an employee can make, and what is the impact on the employee and employer? INCENTIVE STOCK OPTIONS On 5/1/X1, XYZ Corp. grants incentive stock options for 700 shares of its common stock to Employee B when its stock is trading at $10. The exercise price is $11. These options do not trade. B exercises the options on 6/1/Y1 when the stock is trading at $15. B sells the stock on 10/31/Y3 for $35. A. Indicate (a) the income (if any) recognized by the employee & (b) the deduction recognized by the employer (if any) on (1) grant date, (2) exercise date & (3) sale of stock date: B. What would be the tax consequences (to employee and employer) if B sells the stock on 4/30/Y3. Assume sales price is $35. NON-QUALIFIED On 5/1/X1, XYZ Corp. grants non-qualified stock options for 700 shares of its common stock to Employee A when its stock is trading at $10. The exercise price is $11. These options do not trade. A exercises the options on 6/1/Y1 when the stock is trading at $15. A sells the stock on 10/31/Y3 for $35. Indicate (a) the income (if any) recognized by the employee & (b) the deduction recognized by the employer on (1) grant date, (2) exercise date & (3) sale of stock date under the following assumptions: A. No restrictions apply (i.e. the employee is immediately vested) B. Significant restrictions apply to the stock options. The restrictions lapse on 3/31/Y2 when the stock is trading at $21also indicate the income (if any) recognized by the employee and the deduction (if any) recognized by the employer apply when restrictions lapse. C. In part B, are there any choices an employee can make, and what is the impact on the employee and employer? INCENTIVE STOCK OPTIONS On 5/1/X1, XYZ Corp. grants incentive stock options for 700 shares of its common stock to Employee B when its stock is trading at $10. The exercise price is $11. These options do not trade. B exercises the options on 6/1/Y1 when the stock is trading at $15. B sells the stock on 10/31/Y3 for $35. A. Indicate (a) the income (if any) recognized by the employee & (b) the deduction recognized by the employer (if any) on (1) grant date, (2) exercise date & (3) sale of stock date: B. What would be the tax consequences (to employee and employer) if B sells the stock on 4/30/Y3. Assume sales price is $35
