GACPA Information Sheet
ISO vs NSO — Stock Option Taxation
Taxation for individual 1040s who receive Incentive Stock Options (ISO) vs Non-Qualified Stock Options (NSO).
Client & prospect resource
Gideon Adler & Co., CPAs has researched and created this information sheet for clients and potential clients. Read the full sheet online, or download the PDF.
Key points
- ISO grants have no tax at grant if the strike equals fair market value
- ISO exercise can trigger Alternative Minimum Tax (AMT) on the bargain element
- ISO qualifying disposition (2 years from grant, 1 year from exercise) is taxed at long-term capital-gains rates
- ISO disqualifying disposition converts part of the gain to ordinary compensation
- NSO exercise triggers ordinary income on the spread and is reported on your W-2
- NSO subsequent sale is taxed as capital gain or loss from the exercise-date basis
- 83(b) election is generally not available for options — only for restricted stock