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🇺🇸 US · Equity & optionsIncentive stock option (ISO)
Also called: ISO, incentive stock options
In one line
A US tax-advantaged employee stock option that can qualify for lower long-term capital-gains treatment if holding rules are met.
In plain English
ISOs are the 'good' options for employees: exercise and hold long enough and your gain is taxed at favourable capital-gains rates instead of as income. The catch is they can trigger AMT when you exercise.
If you were explaining it to a 5-year-old
It's a special toy voucher with a tax discount — but only if you follow the rules about how long you keep the toy before selling.
Why it matters when you sell
ISOs shape the tax cost of getting shares to sell: holding periods decide your rate, and exercising can create an AMT bill even before you've sold anything.
Related terms
Put it to use
When you're ready to go deeper, there's an optional Equity Toolkit and Report.
Sources
Primary references for this term: US SEC / Investor.gov, 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.