Taxation of Stock Options and Stock Grants

Stock Options in General

If you receive an option to buy stock, you may have to recognize income and pay taxes when you exercise the option or dispose of the stock received on the exercise of the option. There are two types of stock options: statutory stock options and non-statutory stock options.

Generally, options granted under an employee stock purchase plan (ESPP) or an incentive stock option (ISO) plan are considered statutory stock options. Non-statutory stock options are not granted under an ESPP or an ISO plan.

Statutory stock options

● If you are granted a statutory stock option, you generally do not include any amount in your gross income when you are granted or exercise the option. However, you may be subject to an Alternative Minimum Tax in the year you exercise an ISO (usually, a credit is generated that can be used in the future).

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