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Incentive Stock Options

Incentive Stock Options (ISOs) are typically offered to high-valued employees and upper management to retain their employment for the long-term. They may be included when an employee is hired or promoted. The idea being that the valued employees will contribute to the growth of the company, thus raising its stock price and earning themselves a higher payday.

Employees are offered the right to buy shares of company stock as a discounted rate. There’s also an added benefit of possible tax breaks on any profit as qualified ISOs are usually taxed at the capital gains rate and not the usual (and higher) rate for regular income. In comparison, Non-Qualified Stock Options (NSOs) are taxed as regular income.

How it Works

The date ISOs are offered to an employee is called the grant date. The price set by the company on this grant date is known as the strike price, which is usually the price that the shares are valued at that time. They are now subject to a vesting schedule which must be completed before one can exercise the options. Once exercised, an employee now can sell the stock or wait up until 10 years to sell. After that, the options will expire.

Want to Learn More?

There are many different options at your disposal with regards to ISOs. If you’ve been offered equity compensation in the form of ISOs (or any other type), please contact me and let’s look at your choices together.

For more information send me a quick email or call the office.

egerhard@barnumfg.com | (203) 513-6331