Employees will always prefer to receive incentive stock options over nonqualified stock options.

Question

Quizplus · Accepted Answer

Incentive stock options (ISOs) are more favorable for employees because they come with tax advantages. When ISOs are exercised, the difference between the grant price and the sale price is taxed at the lower capital gains rate, as long as certain holding periods are met. Nonqualified stock options (NSOs), on the other hand, are taxed as ordinary income when exercised, which is typically a higher rate. Therefore, employees generally prefer ISOs over NSOs.

Employees Will Always Prefer to Receive Incentive Stock Options Over