Incentive Stock Options
What Are Incentive Stock Options (ISOs)? An incentive stock option (ISO) is a corporate benefit that gives an employee the right to buy shares of company stock at a discounted price with the added benefit of possible tax breaks on the profit.

What is ISO stock on w2?

Incentive stock options (ISOs) are a type of employee compensation in the form of stock rather than cash. If the stock increases in value, the ISO allows the employee to purchase stock in the future at the previously locked-in strike price.

What happens when an ISO expires?

If an employee reaches the 10-year expiration date, and they have yet to exercise their vested stock options, they forfeit those options which get absorbed back into the company.

When do you report sale of ISO shares?

If last year you sold ISO shares that you had held for at least one year after the date you exercised your ISOs and two years after the date your company granted the ISOs, you report the transaction as you would if you had sold shares purchased in the open market.

What are tax considerations for sale of ISO stock?

The regular tax considerations on a sale or other disposition (e.g. gift or transfer) of ISO stock are based on whether you held your shares for the special ISO holding period or whether you made a disqualifying disposition of your ISO stock.

How are ISOs reported on a tax return?

Even when ISO stock is sold at exercise, you have no withholding for Social Security, Medicare, or income taxes. ISO exercises in a given tax year are reported by your company on IRS Form 3921 early in the following year. The form helps you collect information for reporting sales of ISO shares on your tax return.

Do you pay Amt when you sell ISO stock?

Alert: ISO stock that triggers AMT is dual-basis stock. To avoid overpaying taxes when you sell your ISO shares, confirm that the gain calculation for AMT purposes uses a higher basis than that of the regular tax system. This adjustment can reduce the AMT you would otherwise pay on your tax return.