Whats the difference between incentive stock options (ISO) and nonqualified stock options (NSO)?
What’s the difference between an ISO and an NSO? March 5, 2008 [The following is not intended to be comprehensive answer. Please consult your own tax advisors and don’t expect me to answer specific questions in the comments.] Incentive stock options (“ISOs”) can only be granted to employees. Non-qualified stock options (“NSOs”) can be granted to anyone, including employees, consultants and directors. No regular federal income tax is recognized upon exercise of an ISO, while ordinary income is recognized upon exercise of an NSO based on the excess, if any, of the fair market value of the shares on the date of exercise over the exercise price. NSO exercises by employees are subject to tax withholding. However, alternative minimum tax may apply to the exercise of an ISO. If shares acquired upon exercise of an ISO are held for more than one year after the date of exercise of the ISO and more than two years after the date of grant of the ISO, any gain or loss on sale or other disposition wi
