For incentive stock options, the value of the options that vest in a given year always creates a permanent, unfavorable book-tax difference.

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The exercise of incentive stock options can create a permanent, favorable book-tax difference, but the value of options that vest in a given year creates a permanent, unfavorable book-tax difference. This is because the book value (fair market value of the stock at the time of vesting) is higher than the tax value (strike price of the option), which creates a non-deductible book expense and a tax deduction when the options are exercised.

For Incentive Stock Options, the Value of the Options That