On January 22,2015,Dalton Corporation granted Kathleen an option to acquire 1,500 shares of the company's stock for $7 per share.The fair market price of the stock on the date of grant was $13.The stock requires that Kathleen remain with the company for one year after the date of exercise.The option did not have a readily ascertainable fair market value.Kathleen exercises the option on August 10,2016,when the fair market value of the stock is $17.She makes a Section 83 (b)election at the exercise date.On August 10,2017,the fair market value of the stock is $23 per share.How much must she report as income in 2016 and 2017
2016 2017

Question

Quizplus · Accepted Answer

In 2016, Kathleen reports $15,000 as income, which is the difference between the fair market value at exercise ($17) and the exercise price ($7) multiplied by 1,500 shares. In 2017, she reports $0 because the Section 83(b) election means she already included the income in 2016.

On January 22,2015,Dalton Corporation Granted Kathleen an Option to Acquire