How Do You Exercise & Hold Incentive Stock Options Under Section 422B?
Over 90 percent of the Fortune 1000 use incentive stock options as a way of attracting, compensating and motivating their employees. Not only can options greatly increase an employee’s overall compensation, they cost the company relatively little because they transfer the source of the employee’s income to the public stock market. Section 422 of Internal Revenue Code gives preferential tax treatment to incentive stock option income. The employee is not considered to receive any taxable income upon the assignment of incentive options, and then can only be taxed on the difference between the price at execution of the options and the final sale price of the shares purchased with the options. If, at the time of sale, more than two years have elapsed since the grant date and one year since the exercise date, then the profit, if any, is taxed as a long-term capital gain. Understand your options. Options come with an assignment date, a grant price and a date of maturity when they become eligi
