LO.3 Megan, a corporate executive, plans to exercise an incentive stock option (ISO) granted by her employer

Question:

LO.3 Megan, a corporate executive, plans to exercise an incentive stock option (ISO)

granted by her employer to purchase 200 shares of the corporation’s stock for an option price of $25 per share. The stock is freely transferable. The stock is currently selling for

$60 per share.

a. Discuss the tax effects if Megan exercises the option.

b. Can AMT adjustments be avoided if Megan disposes of the stock in the same tax year she exercises the stock option?

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