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There are two types of options commonly used as employee compensation: incentive stock options (ISOs) and nonqualified stock Options (NSOs). Incentive stock options (ISOs) may offer greater income tax benefits. The employee does not recognize income on the grant of ISOs and he/she does not recognize income on the exercise of ISOs. But the bargain element in an ISO is an addition to alternative minimum taxable income in the year the option is exercised. When the stock is sold, the difference between the sale price and the exercise price is a capital gain, provided certain holding period requirements are met. Stock acquired under an ISO must be held for at least one year after the exercise date, or two years after the grant date. If ISO stock is sold before the end of the minimum holding period, the recipient must pay ordinary income tax rates which apply to disqualifying distributions. Like stock acquired through NSOs, the capital gain holding period is measured from the date of......

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Approximate Word Count: 328
Approximate Pages: 2 (250 words per double-spaced page)

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