ExpertMedium1 markMultiple Choice
CPA · Question 13 · Area 1: Individual Tax
A taxpayer receives 1,000 Restricted Stock Units (RSUs) from their employer. The RSUs vest in Year 1 when the stock price is $20. The taxpayer does not make an 83(b) election (not applicable to RSUs usually, but assuming standard RSU treatment). In Year 2, the taxpayer sells the stock for $30. What is the tax treatment?
A taxpayer receives 1,000 Restricted Stock Units (RSUs) from their employer. The RSUs vest in Year 1 when the stock price is $20. The taxpayer does not make an 83(b) election (not applicable to RSUs usually, but assuming standard RSU treatment). In Year 2, the taxpayer sells the stock for $30. What is the tax treatment?
Answer options:
A.
Year 1: $0 income; Year 2: $30,000 capital gain.
B.
Year 1: $20,000 capital gain; Year 2: $10,000 capital gain.
C.
Year 1: $20,000 ordinary income; Year 2: $10,000 capital gain.
D.
Year 1: $20,000 ordinary income; Year 2: $10,000 ordinary income.
How to approach this question
1. Identify Instrument: RSUs (not Restricted Stock).<br/>2. Vesting Event (Year 1): FMV is taxed as ordinary compensation income. $20 * 1,000 = $20,000.<br/>3. Basis established: $20,000.<br/>4. Sale Event (Year 2): Sale Price ($30,000) - Basis ($20,000) = $10,000 Gain.<br/>5. Character: Capital Gain (held as investment after vesting).
Full Answer
C.Year 1: $20,000 ordinary income; Year 2: $10,000 capital gain.✓ Correct
C
Upon vesting in Year 1, the FMV of the RSUs ($20,000) is included in W-2 wages (Ordinary Income). This establishes a basis of $20 per share. When sold in Year 2 for $30, the $10 gain per share is Capital Gain.
Common mistakes
Treating the vesting amount as capital gain or deferring tax until sale.
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