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".

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.

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.

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).

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.
References in periodicals archive ?
Some of the major requirements of incentive stock options include:
Misher, Tax Consequences of Exercising An Incentive Stock Option with Stock of the Granting Corporation, 36 The Tax Executive 357 (July, 1984).
REX: TSX-V), a Canada-based junior exploration company, has granted an aggregate of 2,950,000 incentive stock options to directors, officers, and consultants.
In addition, the company has granted of 60,000 fully-vested bonus shares under its equity incentive plan as well as an aggregate of 365,000 incentive stock options under its stock option plan to some newly hired senior executives and key employees.
V) Wednesday awarded an aggregate of 500,000 incentive stock options.
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.
International Resource News-February 24, 2014--Bear Creek Mining grants 1,292,500 incentive stock options
Carbon Friendly Solutions Inc (CNSX:CFQ), a holding company of developers of energy efficiency technology, renewable energy and reforestation projects, declared on Tuesday that it has granted incentive stock options to certain of its directors, officers and consultants to buy up to 885,000 common shares in its capital stock under a shareholder approved Share Option Plan.
Bear Creek Mining (TSXV: BCM)(BVL: BCM), a company acquiring, exploring, and developing mineral properties, has granted 2,576,200 incentive stock options.