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ISOs - Basics

ISOs › 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.

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.

VIDEO! Employee Stock Options: Core Aspects To Know

With expert insights from the editor-in-chief of, this video covers the essential aspects of employee stock options that you must know to make the most of them, including the key concepts of vesting, exercise, and the option term. Running time: 4:12.
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Stock Options 101: The Essentials

Podcast and video included! So your company has granted you stock options. Now what? Stock options give you a potential share in the growth of your company's value without any financial risk to you until you exercise the options and buy shares of the company's stock. Before you exercise your options, their built-in value is subject to pre-tax growth—which can be significant. This article explains the essential facts that you must know to understand your options and make the most of them.

How To Avoid The Most Common Stock Option Mistakes (Part 1)

Avoid the fumbles others made with options during past ups and downs in the stock markets. Situations where common errors tend to arise can be classed into nine categories, including option-term expiration, job termination, corporate mergers, financial planning, and various life events.

Getting The Most From Your Stock Options This is premium content

Podcast included! Stock options are a major element of your long-term incentive compensation, offering tremendous potential to accumulate personal wealth. Given your stock options' complexity, it’s essential to develop a strategy to realize their full potential.

Stock Option Fundamentals (Part 1): Know Your Goals And Terms

Stock options aren't just for the folks on mahogany row any more. But turning stock options into the real green stuff takes some know-how. You need to know certain features of your grant to decide when to exercise your options and sell the stock.

Stock Option Fundamentals (Part 2): Vesting And Expiration This is premium content

You cannot cash in your stock options immediately. The options must first be vested, and you don't own them forever.

Stock Option Fundamentals (Part 6): Exercise Methods This is premium content

Exercising stock options is like playing a hand of cards: if your plays are strategic, you'll probably "know when to hold them and when to fold them." But, as always, rules and regulations apply to what you can do.

How To Avoid The Most Common Stock Option Mistakes (Part 2) This is premium content

Avoid the mistakes others made during prior ups and downs in the stock markets. Common errors arise in nine different situations, including job termination, mergers, financial planning, term expiration, and various life events.

Stock Option Terms: What You Can Expect This is premium content

Podcast included! Get a sense of what you should, and should not, expect in the terms of your stock option grant. A major survey of companies looks at trends in vesting schedules, post-termination exercise rules, and other plan features.

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.


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...

What is an incentive stock option?

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

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...
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Why don't all companies grant ISOs? What are the disadvantages to companies? This is premium content

Apart from not needing to withhold for ISOs or pay Social Security and Medicare tax, employers derive no substantial benefit from granting ISOs instead of NQSOs. Plus, ISO taxation can be more complex for employees...

What are the holding-period requirements of an ISO?

The tax code is very specific about what you must do. If you want all the appreciation over the exercise price to be taxed upon sale at favorable long-term capital gains rates, you must...

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...

Why does my employer require me to give notice of a sale of ISO or ESPP stock? This is premium content

If you make a disqualifying disposition with your ISO or ESPP shares...

Is the gifting or donation of stock that I acquired from an ISO exercise or ESPP purchase a disqualifying disposition? What is the tax treatment? This is premium content

A disqualifying disposition occurs if you sell, transfer, exchange, gift, or donate the stock that you acquired without...

UPDATES! Will I receive information statements from my company about ESPP purchases or option exercises? Will I receive Form 3922 or Form 3921? This is premium content

Companies make some information available voluntarily, while the reporting of other information is mandatory. Section 6039(a) of the Internal Revenue Code requires companies to send an information statement to employees who have exercised incentive stock options or have made purchases in a tax-qualified Section 423 employee stock purchase plan. ISO exercises are reported on IRS Form 3921. ESPP purchases are reported on IRS Form 3922...

How are ISOs usually handled in divorce? This is premium content

The Internal Revenue Code and IRS regulations prohibit transfers, so grant agreements cannot allow ISOs to be transferred in divorce. When divorce occurs, under the property settlement either...

Is transferring ISO stock into a joint account with my spouse a disqualifying disposition if the stock has not met the holding-period requirements? This is premium content

No. Similarly, the transfer of share certificates into a brokerage account to be held in street name would not be a disposition...
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