ISOs

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ISOs › Taxes

Test your knowledge with our Incentive Stock Options quiz and interactive answer key!

Test your knowledge with our Stock Options quiz and interactive answer key!

Listen to our podcast on the basics of stock options, or watch our videos on core concepts and ISO taxes.

Articles

Incentive Stock Options: 5 Key Points You Must Know To Make The Most Of ISOs And Avoid Costly Mistakes

The myStockOptions Editorial Team

Incentive stock options (ISOs) are potentially quite valuable. However, they are more rule-bound, complex, and risky than nonqualified stock options (NQSOs). In fact, mistakes with ISOs can be quite costly. This article presents five key aspects of ISOs that you must know at the time of grant, before you exercise the options, and when you sell the shares.

Stock Option Fundamentals (Part 5): Incentive Stock Option Taxation And Alternative Minimum Tax

Marilyn Renninger

Learn how and when income from ISOs is subject to taxes, including the alternative minimum tax. You must consider taxes at both exercise and sale to put together an optimal strategy.

VIDEO! Incentive Stock Options (ISOs): Taxes

Bruce Brumberg

To make the most of incentive stock options (ISOs), you must understand their tax fundamentals, explained by the editor-in-chief of myStockOptions.com in this engaging video.

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Stock Option Fundamentals (Part 3): Income Taxes And Withholding

Marilyn Renninger

Here's some advice for financial fitness: take stock of taxes before you exercise! When and how you exercise your stock options can have a major impact on how much tax and which taxes you'll pay.

Presentation! Incentive Stock Options: An Overview

myStockOptions.com Editorial Staff

PowerPoint presentation (in PDF) that the editorial team of myStockOptions.com developed to provide a convenient crash course on the basics of incentive stock options. myStockOptions Pro members may request permission to use it for company employees or financial-planning clients.

Treasury And IRS Regulations For Incentive Stock Options

IRS and US Treasury Department

The final IRS regulations on ISOs, last modified in 2004, clarified points that are of greater concern to ISO-granting companies than to individual optionholders and advisors (they did not affect the basic tax structure or the AMT treatment). However, for the purposes of ISO-related financial planning, the rules do clarify certain advanced topics, such as the wash sale rule, stock swaps, transfers to trusts, and transfers in divorce, and they confirm current interpretations and practices. A detailed discussion about the background of the final ISO regulations occurs in the text of the proposed regulations.

Taxable And Nontaxable Income: IRS Publication 525

Internal Revenue Service

This IRS publication explains the tax treatment of many kinds of income, including that from NQSOs, ISOs, and restricted stock/RSUs.

FAQs

What are the tax consequences of exercising an ISO?

ISO taxation is complex. The tax impact depends on when you sell or transfer the stock...

What do I need to know about the information on IRS Form 3921 for incentive stock options?

Your company is required to file Form 3921 with the IRS and either give you a copy or present the same information on a substitute document. With this reporting, the IRS now knows more information about your ISO exercises than it did before, particularly with regard to...

Has recent legislation changed the taxation of incentive stock options?

The tax reform that took effect in 2018 includes significant changes to the calculation of the alternative minimum tax (AMT) that will result in...

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How am I taxed on my gain from a sale of stock that I acquired in an ISO exercise?

First: Remember that the sale of ISO stock will raise AMT implications (alternative minimum tax). Second: The matter depends on how long you hold the stock...

What is a disqualifying disposition with incentive stock options, what can cause it, and why does my company care?

"Disqualifying disposition" is the legal term for selling, transferring, or exchanging ISO shares before satisfying the ISO holding-period requirements: two years from date of grant and one year from date of exercise. If you sell, transfer, gift, or short the stock too soon, you lose...

How am I taxed if I make a disqualifying disposition (e.g. sale) of ISO shares in the year I exercised the option?

While you lose the opportunity to have the lower long-term capital gains rate apply to the difference between the exercise and sale price, the alternative minimum tax (AMT) no longer applies. You do have compensation income and perhaps short-term capital gains equal to...

What are the ISO withholding rules?

Unlike with NQSOs, there is no federal income tax withholding at...

W-2 diagram What will my W-2 show after I exercise incentive stock options?

For an ISO exercise in which you hold the stock, nothing is...

If I sell my ISO shares at exercise or within a year of the exercise, I will be taxed as if I had nonqualified stock options (NQSOs). Does this mean taxes will be withheld?

When you sell ISO shares early...

If I plan to sell my ISO stock before the end of the required holding periods (i.e. a disqualifying disposition), is there any tax advantage to receiving ISOs instead of NQSOs?

Yes. Unlike with NQSOs, federal tax laws currently provide that Social Security taxes are not owed upon exercise of ISOs, regardless of whether you soon sell the stock...

What happens if I have a capital gain from one sale of company stock and a capital loss from another sale of company stock or another security?

The treatment for tax-loss harvesting is similar to that of owning and selling any two stocks. The income-tax reporting for multiple transactions is...