ABC Corporation awarded John 1,000 options in 2015; 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 2017, John exercised the options when the stock's selling price was $40 per share.In 2019, John sells the stock for $50 per share.How much income does John recognize in 2017 when he exercised the options if they are incentive stock options?

Question

Quizplus · Accepted Answer

Incentive stock options (ISOs) do not generate taxable income to the employee at the time of exercise. The difference between the exercise price and the market price at the time of exercise is not recognized as income for tax purposes under ISO rules.

ABC Corporation Awarded John 1,000 Options in 2015; Each Option