Using the Incentive Stock Option Qualification

Mind the Details to Ensure Favorable Tax Treatment

Tiffany Ireland, MBA, and Nichole Hearn, MBA, and Laura Conway, CPA, and Wei-Chih Chiang, DBA

In order to attract and maintain a quality workforce, companies usually provide retirement savings as part of their compensation plans. For many years, Congress has granted special tax treatment for money set aside for retirement. One form of retirement savings is deferred compensation, a category that includes qualified pension plans, retirement plans, and stock options. The primary benefit of most deferred compensation is the deferral of taxation until the date at which the employee actually realizes the benefits. Nevertheless, the special tax effects of these qualified plans are subject to many restrictions in the tax code.