Understanding Incentive Stock Options (ISOs): A Comprehensive Guide

Stock options are one of the more popular forms of equity compensation. They give employees the opportunity to buy company stock at a built-in discount while also possibly enjoying tax advantages.

There are two types of stock options, Incentive Stock Options (ISOs) and Non-statutory Stock Options (NSOs). Which type you hold will largely dictate your strategy around holding, exercising, and selling your stock.

In this article, we’ll focus primarily on ISOs. Also referred to as qualified stock options, ISOs can be granted only to employees of a company (independent contractors are not permitted).

While many people get excited about options and what their value might mean for their financial future(s), it’s good to remember there are certain strategies you can either implement or avoid to ensure you are getting the outcome you desire.

For a deeper understanding of employee equity, you can download our free equity compensation guide. Once downloaded, you unlock access to Personal Capital’s financial tools, and with these two free resources, you’ll be able to:

• Calculate the value of your equity
• Understand the potential tax treatment of your compensation
• Weigh your options on cashing out