Suzanne Received 20 ISOs (Each Option Gives Her the Right

question 75

Essay

Suzanne received 20 ISOs (each option gives her the right to purchase 20 shares of stock for $12 per share)at the time she started working when the stock price was $13 per share.Three years later,when the share price was $23 per share,she exercised all of her options.If Suzanne holds the shares for two additional years and sells them when the market price is $30,how much gain will Suzanne recognize on the sale and how much tax will she pay assuming her marginal tax rate is 39.6 percent?

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Definitions:

Ability-to-Pay Principle

A taxation principle that argues taxes should be levied according to an individual's or entity's capability to bear the tax burden.

Income Taxes

Taxes levied by governments on individuals or corporations' income, where the tax rate may increase as the taxable amount increases.

Excise Taxes

Taxes imposed on the sale of specific goods and services, such as tobacco, alcohol, and gasoline, usually aimed at discouraging their consumption or generating revenue.

Regressive Tax

A tax that takes a larger percentage from low-income earners than from high-income earners, considered regressive because it affects those who are less able to pay.