What is an incentive stock option (ISO)?

ISOs are also called statutory or qualified stock options. Incentive stock options (ISOs) are a popular means of employee compensation for corporate management, granting rights to company stock at a discounted price at a future date. This type of employee stock purchase plan is intended to retain key employees or managers.

Are incentive stock options tax deductible?

ISOs are a type of stock option –they are not actual shares of stock; you must exercise your options to become a shareholder. Incentive stock options are differentiated from other types of equity compensation by how they are taxed. Unlike non-qualified stock options (NSO), you usually don’t have to pay taxes when you exercise ISOs.

Do you have incentive stock options for a startup?

Startups and other types of companies in the U.S. include ISOs as part of a total compensation package. Stock options like ISOs can motivate employees to stay longer until the options vest. Once your incentive stock options fully vest, you can purchase them (exercise your options) at a pre-set strike price.