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Incentive stock options (ISOs)
Also called “qualified” or “statutory” stock options, ISOs are considered tax-advantaged stock options based on U.S. tax law. With ISOs, the spread (the difference between the award price and the fair market value) will count as income for the alternative minimum tax (AMT) in the year you exercise your options.
CBOE: https://medicalexecutivepost.com/2024/11/19/cboe-chicago-board-of-trade-volatility-indexes/
Example: If you exercise and hold the shares for more than one year past the exercise date and more than two years past the original grant date, the sale of the stock becomes a qualifying disposition, and any realized profit is typically taxed at the long-term capital gains rate. If you sell earlier, the spread will be taxed at your ordinary income tax rate.
ISOs vs. NSOs: What’s the difference?
There are two types of employee stock options: statutory and nonstatutory. They can also be referred to as qualified and nonqualified, respectively. ISOs are statutory (qualified) and differ from nonstatutory (nonqualified) stock options (NSOs) in a few key ways:
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- Eligibility. ISOs are issued only to employees, whereas NSOs can be granted to outside service providers like advisors, board directors or other consultants. Typically, mainly senior executives or key employees are given ISOs, as a company is not required to offer ISOs to all employees.
- Tax perks. ISOs have more compelling tax treatment compared with NSOs.
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Filed under: "Ask-an-Advisor", CMP Program, finance, Financial Planning, Funding Basics, Glossary Terms, Investing | Tagged: AMT, CMP, incentive stock options, ISOs, non-statutory, NSOs, statutory, stock options, tax, Taxation, what is AMT?, what is an ISO?, what is NSO? |
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