ISO (Incentive Stock Option)
What is an ISO? Incentive Stock Options Explained
An ISO is a US stock option with preferential tax treatment. At exercise, you don't owe ordinary income tax on the spread. If you hold shares 1 year post-exercise and 2 years post-grant, the entire gain is taxed at lower capital gains rates.
The catch: the spread at exercise is an AMT (Alternative Minimum Tax) preference item. You may owe AMT even without regular income tax. ISOs have a $100K annual exercisable limit and expire 90 days after leaving.
ISOs can only be granted to employees (not contractors or advisors). The company gets no tax deduction unless the employee makes a disqualifying disposition.