What is an incentive stock option (ISO)?
An incentive stock option, or ISO, qualifies for special tax treatment under the Internal Revenue Code if it meets certain requirements set forth in the Code. ISOs are not granted by all companies, and can be granted only to employees. There is a $100,000 limit on the aggregate grant value of ISOs that can vest in any one calendar year. Like most stock options, ISOs must generally be exercised within three months following termination of an option holder’s employment. If the stock acquired upon exercise is held for at least two years from the date of the grant, and at least one year from the date of exercise, the employee receives favorable long-term capital gains tax treatment for any appreciation over the exercise price.
