It depends. Each type of option has a different type of tax treatment, so you do well to choose the option that is most advantageous to your situation. Please note the following information, along with links that give more detailed consieration:
Incentive
Stock Options a/k/a qualified or statutory options
•No taxation when ISOs are granted
or exercised (but possible AMT adjustment)
•Taxable income when stock is sold
•The employee must hold the stock
for at least one year after the exercise date and for two years after the grant
date for capital gain treatment.
Nonqualified
Stock Options
•No tax on grant of option
•Tax on exercise—ordinary income on
difference between grant price and exercise price. Reported on W-2.
•Capital gain/loss on subsequent of
stock.
•The vast majority of employees sell
the stock immediately upon exercising the option.
A lot may depend on what you plan to do with the stock upon exercising it. And, while AMT is not a subject that many taxpayers want to deal with, the new tax laws make it at least more likely that you will not face AMT consequences for the exercise. The point is to find out what is best for your specific situation and choose that option.
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