ACC – Sally became an employee of DotGismo, Inc., a privately held firm

ACC – Sally became an employee of DotGismo, Inc., a privately held firm

Question
	

Sally became an employee of DotGismo, Inc., a privately held firm. On December 15, 20X3,Sally was allowed to buy 20,000 shares of DotGismo stock for $40,000 dollars. When Sallybought the stock, each share was worth $2. DotGismo retained the right to repurchase eachshare for $2 original purchase price if Sally leaves DotGismo at any time during the next twoyears for any reason. DotGismo stock increased to $5 per share in December 15, 20X5, whenthe two year restriction ended. Sally sold the stock on January 18, 20X6 for $9 per share, afterthe announcement of a new patent for DotGismo. Advise Sally roughly how much tax she mustpay and for what year(s). Assume Sally is in the 35% tax bracket for ordinary income and 15%for long term capital gains.