Incentive Stock Option

(redirected from Incentive stock options)
Also found in: Dictionary, Thesaurus, Legal.

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 ?
Incentive stock options are also adopted by companies listed in China as a necessary means to retain employees and boost profits.
Stock options for employees fall into three major categories: Incentive stock options, nonqualified stock options and restricted stock.
Incentive stock options are the most tax-advantaged way to share in the growth of your company -- but out of ignorance, many executives do not take advantage of the preferential tax treatment available to ISOs.
Inca One Gold Corporation (TSXV: IO)( Frankfurt: SU9.F)( SSEV: IOCL), a Canadian-based mineral processing company, has authorised the granting of incentive stock options to directors and officers of the company.
New York, NY, May 07, 2011 --(PR.com)-- The Knowledge Group/The Knowledge Congress Live Webcast Series, the leading producer of regulatory focused webcasts, announced today that it has scheduled a live webcast entitled: "Understanding New Employer Reporting Requirements for Incentive Stock Option and Employee Stock Purchase Plan." This two-hour event is scheduled on May 27, 2011 from 12:00 PM - 2:00 PM ET.
In reading the October "Options Backdating" issue, it seems clear that incentive stock options (ISO) isn't the problem; the nonqualified stock option (NSO) is the problem.
In a well-known song, "The Gambler," Kenny Rogers advises, "[k]now when to hold 'em, know when to fold 'em, know when to walk away, and know when to run." Although intended for card players, this advice should also be heeded by holders of incentive stock options (ISOs).
Preferences that must be added back include (but are not limited to) the standard deduction, personal exemptions, a portion of medical expenses, state and local taxes, some mortgage interest, a portion of miscellaneous itemized deductions, net operating loss deductions, passive income or loss deductions, a portion of accelerated depreciation and some income from the exercise of incentive stock options. Exemption amounts differ, depending on the taxpayer's filing status, and are phased out if AMT income exceeds certain limits.
The IRS recently released Private Letter Ruling 200519011 (5/13/05) addressing the division of incentive stock options (ISO) in a divorce.
The forthcoming guidance is also expected to exempt statutory stock options, such as incentive stock options (ISOs) and employee stock purchase plans (ESPPs), as well as bonuses that are paid out within 2-1/2 months after the end of the bonus period.
* Notice 2001-14 announced the IRS's intention to clarify the application of FICA and FUTA taxes and income tax withholding to statutory options (incentive stock options (ISOs) and employee stock purchase plans (ESPPs)).
On a more fundamental level, the increase in ordinary income tax rates may cause compensation committees to re-emphasize the awarding of incentive stock options (ISOs).