Understanding Qualifying Disposition in Stock Options

Qualifying disposition is a term that deals with stock transfers when individuals are involved in an incentive stock option program. Here are the basics of qualifying disposition for stock transfers and what it means.

Qualifying Disposition

Many companies out there offer employee stock purchase programs. One of these types of programs is referred to as the incentive stock option or ISO program. With this program, employees will be able to get stock options for a company as part of their benefits package. These individuals have the option to get stock from the company treasury whenever they want. A qualifying disposition is when an individual decides to transfer or sell shares that they have obtained through an incentive stock option program.

Benefit

The big benefit of utilizing qualifying disposition is that it gives you a tax advantage. The capital gains taxes on the sale of your stock are only going to be calculated on the difference between the price that you exercised the stock and the price that you sold the stock in the market. Therefore, if you sell your stock immediately after getting it from the incentive stock option program, you will have virtually no taxes to worry about.