ABC Corporation awarded John 1,000 options in 2014; each option allows him to purchase one share of ABC Corporation stock for $20. The ABC stock was selling for $18 per share at the grant date. In 2016, John exercised the options when the stock's selling price was $40 per share. In 2018, John sells the stock for $50 per share. How much income does John recognize in 2016 when he exercised the options if they are incentive stock options?
A) $0
B) $18,000
C) $20,000
D) $40,000

Question

Quizplus · Accepted Answer

Incentive stock options (ISOs) do not result in taxable income when exercised. Instead, the difference between the exercise price and the market price is subject to alternative minimum tax (AMT) considerations.

ABC Corporation Awarded John 1,000 Options in 2014; Each Option