Compare And Contrast Taxable Fringe Benefits

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Chapter 12. Compensation |LO 1 |Discuss and explain the tax implications of compensation in the form of salary and wages from the employee's and employer's perspectives. | |LO 2 |Describe and distinguish the tax implications of various forms of equity-based compensation from the employer's and employee's | | |perspectives. | |LO 3 |Compare and contrast taxable and nontaxable fringe benefits and explain the employee and employer tax consequences associated with fringe | | |benefits.…show more content…
|The bargain element on a nonqualified option is taxed to employees at capital gain rates. | No tax effect is incurred by employees or employers on the grant date, unless the restrictions lapse on the date on which the options are granted (which would have the same effect as assuming there is no restriction on sale of the stock). Page 11, 12. Employee considerations – both NQSO and ISOs Which of the following refers to the date stock options are awarded to an employee? |a. |Grant date. |b. |Exercise date. |c. | |b. |$500 gain and $75 tax. |d. |$1,200 gain and $180 tax. | The gain realized is $500 (100 shares x $20) less basis (100 shares x $15 exercise price). The tax is calculated as follows: $500 x 15% (preferential rate). Bad Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $10 per share) from his employer. At the time he started working the stock price was $11 per share. Now that the share price is $25 per share, he intends to exercise all of the options. Two years later Bad Brad sells the stock for $27 per share, what is Bad Brad's basis in his stock for purposes of calculating the gain or

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