ISOs
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ISOs

ISOs

Incentive stock options carry great potential tax benefits, but their taxation can be complex, especially when the alternative minimum tax comes into play. Browse an overview of this section below, or explore the subtopics to the left. See also the ISO sections of the Tax Center.

Selected Articles

Taxes Advanced

12 Tax-Return Mistakes To Avoid With Stock Options And ESPPs This is premium content

Tax returns involving income from stock options or employee stock purchase plans (ESPPs) can be confusing. Recent changes in IRS reporting rules haven't helped. This article explains errors and nasty surprises to avoid.
Taxes Advanced

ISOs: Tax-Return Tips And Traps This is premium content

Tax reporting with incentive stock options (ISOs) can be tricky. Learn what you need to report on your return at each stage of your ISO's life cycle.
Basics

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.
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AMT Advanced

7 ISO Strategies That Can Help Minimize Alternative Minimum Tax This is premium content

Exercising incentive stock options (ISOs) and holding the shares beyond the calendar year of exercise triggers the need for the alternative minimum tax (AMT) calculation. While you should consult a financial advisor, accountant, or tax lawyer about the AMT and your personal situation, this article details several strategies that experts often suggest.
Basics

Stock Options Made Simple: Comparing NQSOs & ISOs

Videos included! Stock options rose to fame in the 1990s. Even on the TV sitcom Seinfeld, Elaine got stock options and wouldn't shut up about them (annoying the heck out of George). Options remain popular. This article explains the two types and how they work.
Taxes

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.
This is simply a selection of the many articles in this section.
Use the navigation to the left to explore all of the categories in this section.

Selected FAQs

Basics

Video included! What are the top 10 questions I should ask about my stock options?

You should know the answers to the questions in this FAQ's checklist and be familiar with the topics presented in the related video. Understanding these will help you make the most of your stock options and prevent costly mistakes...
Basics

What is an incentive stock option?

An incentive stock option (ISO) is a type of stock option that qualifies for special tax treatment...
Taxes Advanced

What are the biggest mistakes related to stock options I can make on my tax return, and how can I avoid them? This is premium content

It is all too easy to make costly tax-return errors that attract unwanted IRS attention. Learn how to prevent mistakes in the 2021 tax season...
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Taxes Advanced

Is there an optimal time during the tax year to exercise incentive stock options? This is premium content

With incentive stock options (ISOs), when you hold the shares for more than one year from exercise and two years from grant, the entire gain at sale over the exercise price is...
Taxes Advanced

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

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...
AMT Advanced

Is there a way to determine how many ISOs I can exercise and hold without triggering the AMT? This is premium content

One strategy for minimizing AMT is to spread out the exercise of ISOs over multiple years. Following the calculation steps outlined in this FAQ, you can determine what is sometimes called your AMT cushion or crossover point...
Basics

In brief, how do nonqualified stock options and incentive stock options differ?

Companies in the United States can grant two types of stock options: nonqualified stock options (NQSOs), the most common type, and incentive stock options (ISOs). The table in this FAQ summarizes and compares the major traits...
Taxes Advanced

What tax treatment applies after ISOs are converted to NQSOs? This is premium content

To have beneficial tax-qualified status, grants of ISOs must have certain characteristics and must follow...
Taxes Advanced

UPDATES! What happens with taxes on stock options if I live or work in different states during the period between grant and exercise? This is premium content

Generally, each state you live in determines what income is taxable and when. For administrative ease, many companies...
Taxes Advanced

What tax statement will I receive from my broker after a sale of company stock? What key facts should I know about it? This is premium content

Form 1099-B or the equivalent substitute statement is necessary for the accurate completion of your tax return. Five facts you must know about this reporting to avoid tax-return mistakes are...
Taxes Advanced

What are some major issues to be aware of when reporting stock sales on my tax return? Why have these issues arisen?

Major changes have occurred in tax-return reporting in recent years, making accurate tax-return reporting more complex and difficult...
This is simply a selection of the many FAQs in this section.
Use the navigation to the left to explore all of the categories in this section.
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