Strategies For An Employee From A Tax Perspective

If Ms. Jameson chooses stock options for her compensation, she will not need to pay taxes until she actually exercises them and sells the shares. At that point, gains on the shares will be taxed at either ordinary tax rate[3] or at capital gain tax rate[4], depending on whether she has held the stock for less than or more than one year after exercising the options. If taxes are considered, the value of option after tax will decrease. In the case that Ms. Jameson holds stocks for less than 1 year, she risks to her income tax rate that could be changed at the fifth year. While there will be no risk regarding tax rate, if she hold the stocks for more than 1 year. The latter case, however, increases risk regarding the share price in the future, in which it will have an effect on her capital gain or loss.

All of LT’s distributions, whether in the form of dividends or stock repurchases will be taxed at the investors personal rate. Buy shares and keeping cash in the firm will depend of the tax rate of the investors relative to that of the firm. Under the former option the money is taxed at the corporate rate and in the latter at personal rate.

capital gains for cash received, on the other hand, they can enjoy the profit when share

b. Ken sold 1,000 shares of stock for $32 a share. He inherited the stock two years ago. His tax basis (or investment) in the

per option. Each option entitles the owner to purchase one share of ABC stock for $25 a share (the per share

Income Taxes: The Corporation pays both state and federal taxes on its earnings. Excess earnings may be shared with stockholders in the form of dividends, on which the stockholder then pays taxes.

6. How does the Privacy Act differ from FOIA, and when would a taxpayer request information under the Privacy Act rather than under FOIA?

10. What’s the basis and holding period of taxable stock rights and the basis and holding period of the shares of stock if the rights are exercised? Amount of income and the basis of the rights constitute the FMV of the rights at the date of distribution, which is the date the holding period of the rights begin. If rights are exercised, basis of new shares = subscription price + basis of rights and holding period of new shares begins on date of exercise. Basis and holding period of old stock remain the same.

According to Code § 311(b), if a corporation distributes appreciated property as dividend, the corporation is taxed on the gains of the property as if the company sold it. If the property has depreciated in value, the corporation can

Dividends should be made cumulative and issuable upon a liquidation event or an IPO. Such dividends may be converted, if the holder desires, to common shares. This will encourage management to seek a quicker exit.

Since firms incur the re-purchase option by offering $20 cash for each stock bought back, the number of outstanding shares will be reduced. The Earnings per share will increase leading to an increased stock price.

FAS 123(R) 5 states that an entity should recognize services received in a share based payment transaction when those services are received. 10 states that an entity shall account for compensation cost from share-based payment transactions with employees in accordance with the fair-value-based method. Under the fair-value-based method, the cost of services received from employees in exchange for awards of share-based compensation shall be measured based on the grant-date fair value of the equity instruments issued. A10-A17 discuss the acceptable methods of calculating fair value at the grant date. The grant-date fair value of the Murray options is $6. Following the guidance in Illustration 4(a), Share Options with Cliff Vesting, of FAS 123(R), compensation expense for the years ended December 31, 2006 & 2007 is $200,000 per year (calculation attached hereto).

It has the option to distribute the cash in the form of dividends. Shareholders were taxed on cash dividends at ordinary income rates whereas gains realized on shares that were repurchased received capital gains treatment.

Tax rate is calculated based on 2006 income statement. No dividends are taken and all income goes towards retained earnings.

We assume that we bought in the share at 20 May 2013 that is followed the Bursa Malaysia price.