What are incentive stock options (ISOs)?

Here's an explanation for Incentive stock options (ISOs) are a type of employee stock option that can provide tax benefits for both the employer and the employee. ISOs are often used as a component of a compensation package to help with employee retention. ISOs are also used to compensate certain highly-valued employees.

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.

How are incentive stock options taxed?

An incentive stock option (ISO) gives an employee the right to buy shares of company stock at a discounted price. The profit on qualified ISOs is usually taxed at the capital gains rate, not the higher rate for ordinary income. Non-qualified stock options (NSOs) are taxed as ordinary income.