Incentive Stock Option

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Incentive Stock Option (ISO)

An Option that has met certain tax requirements entitling the optionee to favorable tax treatment. Such an option is free from regular tax at the date of grant and the date of exercise (when a non-qualified option would become taxable). If two holding period tests are met (two years between grant date and sale date and one year between the exercise date and sale date), the profit on the option qualifies as a long term capital gain rather than ordinary income. If the holding periods are not met, there has been a "disqualifying disposition".
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Stock Option

A non-tradeable call option giving an employee at a publicly-traded company the right to buy shares in that company for a certain price. Stock options in this sense are often a part of compensation for major and mid-level executives in large publicly-traded companies. If the share price for the company increases, stock options can be very profitable for the employee. These stock options have certain rules governing when and how the option can be exercised.
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incentive stock option

An option that permits an employee to purchase shares of the employer's stock at a predetermined price. No tax is due on any gain until the time of sale if the sale date is at least one year subsequent to the date on which the option was granted. Also called employee stock option, option.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Incentive stock option (ISO).

Corporate executives may be granted incentive stock options (ISOs), also called qualifying stock options. These options aren't taxed when they're granted or exercised, but only when the underlying shares are sold.

If, after exercising the options, participating executives keep the shares for the required period, any earnings from selling the shares are taxed at the owner's long-term capital gains rate.

However, stock option transactions may make sellers vulnerable to the alternative minimum tax (AMT).

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.

Incentive Stock Option

A statutory stock option that allows an employee to purchase stock of the employer below current market price. Although the grant or exercise of such an option results in no income for the "regular" tax, the exercise of an incentive option creates income for the minimum tax. If the taxpayer meets the holding period requirements, gain on the sale of the stock acquired by exercising an incentive stock option is long-term capital gain.
Copyright © 2008 H&R Block. All Rights Reserved. Reproduced with permission from H&R Block Glossary
References in periodicals archive ?
Some of the major requirements of incentive stock options include:
Western Pacific Resources Corporation (WRP - TSXV), a company focused on developing the polymetallic Deer Trail Mine in Piute County, Utah, has granted incentive stock options.
According to the company, the incentive stock options have an exercise price of USD0.17 per share, expire five years from the date of grant and vest immediately.
The IRS issued new proposed regulations (REG-122917-02) on incentive stock options (ISOs), under Secs.
Biopharmaceutical company Acasti Pharma Inc (ACST.V) (TSX VENTURE:ACST) announced on Friday that it has awarded an aggregate of 100,000 incentive stock options to two newly elected independent board directors under its stock option plan.
Canada-based Bear Creek Mining (TSX Venture: BCM / BVL: BCM) is granting 30,000 incentive stock options to Steven Krause, the company's chief financial officer, effective May 7, 2012.
Junior producer Avino Silver & Gold Mines (TSX VENTURE:ASM) (NYSE MKT:ASM) Friday awarded incentive stock options under its stock option plan and Restricted Share Units (RSUs) under the restricted share unit plan.
Canada-based Apic Petroleum Corporation (TSX VENTURE:API) has granted incentive stock options to directors, officers, consultants and employees of the Company.
Acasti Pharma (Nasdaq CM:ACST) (TSX:APO.V) Wednesday awarded an aggregate of 500,000 incentive stock options.