Tax
Incentive Stock Option (ISO)
An employee stock option with favorable tax treatment if specific holding requirements are met.
ISOs are stock options granted to employees with potential long-term capital gain treatment on the entire spread — but only if you hold the shares for 1 year past exercise AND 2 years past grant.
Exercise creates no regular tax (only AMT preference). Selling shares before meeting holding requirements is a 'disqualifying disposition' that converts the spread to ordinary income.
Common pitfalls
- AMT on exercise — you owe tax on a paper gain you may never realize
- $100K limit per year on ISOs that are exercisable for the first time
- Disqualifying dispositions accidentally triggered by quick sales
Related service
Visit relevant service