Incentive Stock Option - ISO

Incentive Stock Option - ISO

A type of employee stock option with a tax benefit, when you exercise, of not having to pay ordinary income tax. Instead, the options are taxed at a capital gains rate.

Notes:

Although ISOs have more favorable tax treatment than NSOs, they also require the holder to take on more risk by having to hold onto the stock for a longer period of time in order to receive the better tax treatment.

Additionally, there are numerous restrictions which have to be met in order to qualify as an ISO.

See also: Capital Gain, Cashless Exercise, Employee Stock Option - ESO, Nonqualified Stock Option - NSO