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 is selling for $18 per share at the grant date. In 2016, John exercises the options when the stock's selling price was $40 per share. In 2018, John sells the stock for $50 per share. What is ABC Corporation's deduction if they are incentive stock options?
A) $0
B) $18,000
C) $20,000
D) $40,000

Question

Quizplus · Accepted Answer

Since the options were incentive stock options and John held onto the stock for more than two years from the grant date and one year from the exercise date, any gain on the sale of the stock is treated as a long-term capital gain for tax purposes. Therefore, there is no deduction for ABC Corporation.

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