Stock Option Basics

Stock options offer exciting upside but come with layers of tax complexity depending on type and timing. Here are the core points from the lesson:

• Private company stock options come in two forms: incentive stock options (ISOs) and non-qualified stock options (NSOs), each with different tax rules
• NSOs trigger ordinary income tax at exercise on the spread between strike price and fair market value, with additional capital gains tax upon sale
• ISOs can offer better tax treatment if held for 2 years from grant and 1 year from exercise, avoiding ordinary income tax but potentially triggering alternative minimum tax (AMT)
• Selling ISOs in the same year as exercising can help avoid AMT, but splitting the tax years may result in both AMT and ordinary income tax, creating a worst-case scenario

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