Incentive stock option (ISO)

Corporate executives may be granted incentive stock options (ISOs), also called qualifying stock options. These options aren't taxed when they're granted or exercised, but only when the underlying shares are sold.

If, after exercising the options, participating executives keep the shares for the required period, any earnings from selling the shares are taxed at the owner's long-term capital gains rate.

However, stock option transactions may make sellers vulnerable to the alternative minimum tax (AMT).