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They provide employees the right, but not the obligation, to purchase shares of their employer's stock at a certain price for a certain period of time. Options are usually granted at the current market price of the stock and last for up to 10 years.
Taxes and Incentive Stock Options Your employer isn't required to withhold income tax when you exercise an Incentive Stock Option since there is no tax due (under the regular tax system) until you sell the stock.
An incentive stock option (ISO) is a corporate benefit that gives an employee the right to buy shares of company stock at a discounted price with the added benefit of possible tax breaks on the profit.
The option plan must be approved by the stockholders within 12 months before or after the plan is adopted (see also Explanation: §423, Shareholder Approval Requirement) (IRC § 422(b)(1); Reg. §1.422-3).