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 is selling for $18 per share at the grant date.In 2017, John exercises the options when the stock's selling price was $40 per share.In 2019, John sells the stock for $50 per share.What is ABC Corporation's deduction if they are incentive stock options?

Question

Quizplus · Accepted Answer

For incentive stock options (ISOs), the corporation does not get a tax deduction when the options are exercised. The deduction occurs for the corporation only if the options do not meet the ISO holding period requirements and are thus treated as non-qualified stock options. Since the question does not indicate any disqualifying disposition, ABC Corporation's deduction is $0.

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