Incentive Stock Option

About Incentive Stock Option:

The Incentive Stock Option (ISO) is an equity-type compensation plan under which qualifying stock options are free of tax at the date of grant and the date of exercise but are taxed when sold. Only $100,000 of ISOs can be exercised in one year, and a number of conditions must be met. Former IRC (check if this IRC provision is current here) §422(a).

An option that allows an employee to purchase stock of the employer below current market price. For regular income tax purposes, the “spread” or “bargain element” – the difference between the price paid and market value of the stock – is not taxed when the option is exercised. Rather, it is taxed when the stock is sold. For alternative minimum tax purposes, however, the spread is taxed in the year the option is exercised.

U.S. and other Developed Countries International Tax Meaning

An equity-type compensation plan under which qualifying stock options are free of tax at the date of grant and the date of exercise but are taxed when sold. US system.

Description and Definition of Incentive Stock Option

A type of stock option that is not taxed when received or exercised. Options meeting the tax law test enjoy deferred tax on the option transaction until the underlying stock is sold.

Resources

See Also

Further Reading

• Incentive Stock Option in the West's Tax Law Dictionary
• Incentive Stock Option in “A Dictionary of Taxation”