Nella sells shares of stock she acquired by exercising options granted to her under an employee stock purchase plan (ESPP). Her employer did not offer the shares at a discount, so the price she paid when she purchased the stock was the fair market value at the time. If Nella sells the stock for a profit in a qualifying disposition, how should the difference between her basis and the sale price be reported on her tax return?
Compensation income subject to income tax, as well as social security and medicare taxes.
Ordinary income.
Long-term capital gain.
Short-term capital gain.
