District of Columbia Incentive and Nonqualified Share Option Plan
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How to fill out Incentive And Nonqualified Share Option Plan?
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FAQ
ESOs can be an incentive stock option (ISO) or a non-qualified stock option (NSO). With an ISO, you get a tax advantage upfront. Instead of reporting the stock option as income when you exercise it, you wait until you sell the stock to pay income tax. With an NSO, you pay the tax when you exercise your option.
With NSOs, you could trigger taxes both when you exercise and when you sell your options. This usually means you pay more taxes with NSOs than with ISOs. When you exercise an NSO, any spread between the FMV on the date you exercise and the price you are paying for the stock is considered ordinary income to you.
Under ESOS, employees are given an option to purchase shares at a later date, i.e. after the vesting period. Under ESOPs, employees are given an option to purchase shares on the spot at a discounted price. The company may specify the lock-in period for the shares issued pursuant to the exercise of the option.
An incentive stock option (ISO) is a qualified stock option that provides added tax benefits to employees. Unlike common stock, a stock option provides its holder with the right to buy shares of the company's stock at a set price (the ?exercise price? or ?strike price? ) at a future date.
ISOs have more favorable tax treatment than non-qualified stock options (NSOs) in part because they require the holder to hold the stock for a longer time period. This is true of regular stock shares as well.
If a stock option isn't an ISO, it's typically referred to as a nonqualified stock option. NQOs don't qualify for special tax treatment. The favorable tax treatment is the main advantage of ISOs for employees, and this includes long-term capital gains and no recognition of income when they exercise their options.
Only employees can receive ISOs, whereas NSOs may be granted to any service providers (e.g., employees, directors, consultants, and advisors). ISOs must be exercised within three months following termination of employment (even if the holder continues providing services in some other capacity).
Taxation on nonqualified stock options As mentioned above, NSOs are generally subject to higher taxes than ISOs because they are taxed on two separate occasions ? upon option exercise and when company shares are sold ? and also because income tax rates are generally higher than long-term capital gains tax rates.