Our company issued incentive stock options (ISO) to many employees. Several of them are asking questions about the taxation for those options should they exercise them and sell them in the future. How are they taxed?

ANSWER

The BIDaWIZ Team's Answer:

A key factor to consideration in the taxation of these ISOs is the timing from the date the grants are exercised versus the date the shares are sold. If the ISO are exercised and sold within a year, then the gain is taxed at ordinary income tax rates. However, if the options are exercised and sold more than a year apart, then the tax treatment would be the more favorable capital gains tax rate. This is referenced in IRC Section 422 and IRS Publication 525.