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Stock Options
Stock options are a type of compensation that allows employees to purchase company stock at a predetermined price, often at a discount from the current market price. They're a popular way for companies to reward and retain employees, as they provide an incentive to work hard and help the company succeed. There are two main types of stock options:
- Incentive stock options (ISOs): These are granted to employees and are subject to special tax treatment. The employee has the right to buy company stock at a predetermined price, but they only pay taxes on the difference between the exercise price and the market price when they sell the stock.
- Non-qualified stock options (NSOs): These are granted to employees and other service providers, such as consultants. The employee pays taxes on the difference between the exercise price and the market price when they exercise the option.