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
See personal tax servicesHave a Incentive Stock Option (ISO) situation in your business?
Federal, state, and local returns prepared and reviewed by a licensed CPA, with the planning done before year-end rather than after it.