Question
Required information ((This question must be filled out on a tax form1040 SCHEDU D) Please make sure to put all numbers in the correct box's)
Required information ((This question must be filled out on a tax form1040 SCHEDU D) Please make sure to put all numbers in the correct box's)
Pratt is ready to graduate and leave College Park. His future employer (Ferndale Corp.) offers the following four compensation packages from which Pratt may choose. Pratt will start working for Ferndale on January 1, year 1.
Benefit Description | Option 1 | Option 2 | Option 3 | Option 4 | |||||
Salary | $60,000 | $ | 50,000 | $ | 45,000 | $ | 45,000 | ||
Health insurance | No coverage | 5,000 | 5,000 | 5,000 | |||||
Restricted stock | 0 | 0 | 1,000 | shares | 0 | ||||
NQOs | 0 | 0 | 0 | 100 | options | ||||
|
Assume that the restricted stock is 1,000 shares that trade at $5 per share on the grant date (January 1, year 1) and are expected to be worth $10 per share on the vesting date at the end of year 1. Each NQO allows the employee to purchase 10 shares at a $5 strike price). The stock trades at $5 per share on the grant date (January 1, year 1) and is expected to be worth $10 per share on the vesting date at the end of year 1. Also assume that Pratt spends on average $3,000 on health-related costs that would be covered by insurance if he had coverage. Assume that Pratts marginal tax rate is 35 percent. Assume that Pratt spends $3,000 in after-tax dollars for health expenses when he doesnt have health insurance coverage (treat this as an outflow), and that there is no effect when he has health insurance coverage. (Ignore FICA taxes and time value of money considerations). (Leave no answers blank. Enter zero if applicable.)
c. Assuming Pratt chooses Option 3 and sells the stock on the vesting date (on the last day of year 1), complete Pratts Schedule D and Form 8949 for the sale of the restricted stock.
Pratt's social security number: 412-34-5670
(Input all the values as positive numbers. Use 2017 tax rules regardless of year on tax form.)
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