ABC Corporation awarded John 1,000 options in 2013; 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 2015, John exercised the options when the stock's selling price was $40 per share. In 2017, John sells the stock for $50 per share. How much income does John recognize in 2015 when he exercised the options if they are incentive stock options?

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 at exercise is a preference item for the alternative minimum tax (AMT).

ABC Corporation Awarded John 1,000 Options in 2013; Each Option