Annotated diagram of Schedule DTax errors can be costly! Don't draw unwanted attention from the IRS. Our Tax Center explains and illustrates the tax rules for sales of company stock, W-2s, withholding, estimated taxes, AMT, and more.
Get funding for your options with Equitybee.
ISOs - Taxes

ISOs › Taxes


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

Video included! 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 This is premium content

Video included! 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

To make the most of incentive stock options (ISOs), you must understand their tax fundamentals, explained by the editor-in-chief of in this engaging video.
Show More Articles (4 more)

Stock Option Fundamentals (Part 3): Income Taxes And Withholding This is premium content

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

PowerPoint presentation (in PDF) that the editorial team of 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

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.


Video included! What are the tax consequences of exercising incentive stock options?

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

Video included! How am I taxed on my gain from a sale of stock that I acquired in an ISO exercise? This is premium content

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...

Video included! What are the ISO withholding rules?

Unlike with NQSOs, there is no federal income tax withholding at...
Show More FAQs (10 more)

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? This is premium content

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...

W-2 diagram What will my W-2 show after I exercise incentive stock options? This is premium content

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

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? This is premium content

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...

My company allows me to exercise my ISOs more than three months after I leave my job. What is the tax treatment at exercise?

The Internal Revenue Code is very clear on the requirements of favorable tax treatment for ISOs. Among other conditions...

Has recent legislation changed the taxation of incentive stock options? This is premium content

The Tax Cuts & Jobs Act (TCJA), which took effect in 2018, included significant changes to the calculation of the alternative minimum tax (AMT) that result in...

What are capital gain and capital loss? What are the tax rates on capital gains?

Capital gain is income that arises from the sale of a capital asset. Gain from the sale of securities held for investment, such as shares acquired from stock compensation...

When does my holding period for capital gains begin? At exercise or vesting?

The holding period to determine whether a capital gain is long-term or short-term starts on the...

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? This is premium content

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...
We've updated our Privacy Policy, and this site uses cookies. Read the Privacy Policy to learn more.