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🇺🇸 US · US tax

Bargain element

Also called: spread, compensation element

In one line

The difference between a share's fair market value and your strike price at the moment you exercise — the 'gain on paper'.

In plain English

It's how good a deal you got: value minus what you paid. For NSOs it's taxed as income immediately; for ISOs it's the figure that feeds AMT.

If you were explaining it to a 5-year-old

The toy is worth 10 coins but your voucher let you buy it for 1. The 9-coin saving is the bargain element — and that's what tax looks at.

Why it matters when you sell

The bargain element is the taxable number when you exercise, so a big spread means a big tax bill to fund before you've sold a single share.

Related terms

Strike priceFair market value (FMV)Alternative minimum tax (AMT)Non-qualified stock option (NSO)Ordinary income (equity)Spread (equity)

Put it to use

Cost to exercise + AMT

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Sources

Primary references for this term: IRS (US tax). Our definitions are written in plain English and kept evergreen — see the glossary methodology. General information, not advice.

Educational information only — not financial, tax or legal advice, and not an offer to buy or sell any security. Definitions are general; your own documents and local law govern your situation. PrivateTechShares is independent and not a broker or marketplace.