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Bell Corporation grants an incentive stock option to Peggy, an employee, on January 1, 2019, when...

Bell Corporation grants an incentive stock option to Peggy, an employee, on January 1, 2019, when the option price and FMV of the Bell stock is $80.The option entitles Peggy to buy 10 shares of Bell stock. Peggy exercises the option and acquires the stock on April 1, 2021, when the stock’s FMV is $100. Peggy, while still employed by the Bell Corporation, sells the stock on May 1, 2023 for $120 per share.

What are the tax consequences to Peggy and Bell Corporation on the fallowing dates:

January 1, 2019; April 1, 2021; and May 1, 2023? (Assume all incentive stock option qualification requirements are met.

b. How would your answer to Part a change if Peggy instead sold the bell stock for $130 per share on May 1, 2021?

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Answer #1

INcentive Stock option is benefit to employee gives option to buy stcok less than market rate ,The profit on Stock selling arises capital gain , Tax on Capital gain not higher than ordinary rate based on income of individual.

Tax Consquences of Stock option sells At different Years

On jan 1 2019-peggy not exercised the stock option no capital gain arises.

On jan 1 2021 -peggy exercised the Stock option capital arises required to pay Tax =$100-$80*10=$200 gain

ON may 1 2023-peggy exercised the Stock option capital arises required to pay Tax=$120-$100 *10=$200

oN MAY 1 201-peggy exercised the Stock option capital arises required to pay Tax=$130-$100*10=$300

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