Incentive Stock Option - ISO

AAA

DEFINITION of '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.

INVESTOPEDIA EXPLAINS 'Incentive Stock Option - ISO'

Although ISOs have more favorable tax treatment than non-qualified stock options (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.

Also, numerous requirements must be met in order to qualify as an ISO.

RELATED TERMS
  1. Equity Compensation

    This is one way to attract and retain employees to a startup ...
  2. Retention Bonus

    A payment or reward outside of an employee's regular salary that ...
  3. Non-Open Market

    Describes an agreement to purchase or sell shares made directly ...
  4. Cashless Exercise

    A transaction that is used when exercising employee stock options ...
  5. Employee Stock Option - ESO

    A stock option granted to specified employees of a company. ESOs ...
  6. Overhang

    A measure of the potential dilution to which a common stock's ...
Related Articles
  1. An employee stock option plan can be a lucrative investment instrument if properly managed.
    Investing Basics

    Get The Most Out Of Employee Stock Options

    These plans can be lucrative for employees - if they know how to avoid unnecessary taxes.
  2. Options & Futures

    The "True" Cost Of Stock Options

    Perhaps the real cost of employee stock options is already accounted for in the expense of buyback programs.
  3. Options & Futures

    Should Employees Be Compensated With Stock Options?

    Learn the good, the bad and the ugly sides of this type of payout.
  4. Options & Futures

    The Controversy Over Option Expensing

    There has been much debate over whether companies should treat employee stocks options as an expense. This article examines both sides of the argument.
  5. Taxes

    Cut Employee Stock Option Taxes With AMT Credit

    Learn how refundable AMT credits can help you save on taxes, AMT bills and more.
  6. Options & Futures

    Executive Compensation: How Much Is Too Much?

    The proxy statement can help determine whether a CEO is well compensated - or just overpaid.
  7. Options & Futures

    What does the term "stock-for-stock" mean?

    The term "stock-for-stock" is popularly used in two different contexts, and it regularly makes business news headlines in both."Stock-for-stock" most commonly appears in headlines in reference ...
  8. Investing Basics

    Enterprise Resource Planning System: A How To

    An ERP system won’t transform poor management into good management, but the real-time business analytics can help make good management even better.
  9. Options & Futures

    What are the most common momentum oscillators used in options trading?

    Read about some of the most common technical momentum oscillators that options traders use, and learn why momentum is a critical concept for options trading.
  10. Options & Futures

    How are Bollinger Bands® used in options trading?

    Use Bollinger Bands to identify volatility changes and place options trades at the right time; profit in bull or bear markets using these strategies.

You May Also Like

Hot Definitions
  1. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  2. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  3. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  4. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  5. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  6. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
Trading Center