ISO Stock Options

Administration Software

What Global Shares can provide for your ISO Stock Options

Global Shares can provide automated administration software for ISO stock options which have administrative rules that can make them complex to handle for accounting and payroll departments not using an automated software solution for ISO tax treatment. Some of the challenges companies face when administering ISO stock options include:

  • If ISO stock options  are granted to an individual holding more than 10% of the company’s equity, than the grant price must be at least 110% of the fair market value of the company stock on the grant date.
  • ISO stock options must be granted only to employees and directors of a company. Contracts are ineligible to receive incentive stock options.
  • The Contractual Term of ISO stock options must be limited to 10 years from the date of grant.
  • ISO stock options must be exercised with 3 months of termination to qualify for special tax treatment.
  • An ISO stock option grant must be approved by the Board of Directors and the Shareholders prior to being granted by the company.

Global Shares fully automated equity administration software ensures all ISO stock options rules are adhered to and will inform the administrator if they are trying to do something that runs contrary to ISO stock options rules.

“Tracking ISO stock options accurately is a critical component for accounting and payroll departments so as to ensure that all criteria for an ISO stock option are being adhered to. Global Shares software facilitates this with fully automated rules and processes which ensures that a company’s ISO stock option setup is fully compliant from tax and administrative perspectives.”

Disqualifying Disposition

There are two types of dispositions for ISO Stock Option post exercise:

    • Qualifying dispositions occur when the underlying stock is held for at least 2 years from the ISO stock option grant date and 1 year from the ISO option exercise date.

      If these rules are not met, then the ISO stock options are said to have a non-qualified, or disqualifying disposition.

    • When ISO stock options have a qualifying disposition, the total amount of gain resulting from the spread between the ISO stock option exercise price and stock selling price is treated as a long-term capital gain also referred to as beneficial tax treatment.

    • The consequence of disqualifying disposition is that the ISO stock options lose their special tax status and become treated as non-qualified stock options. The tax treatment of non-qualified stock option exercises means that the spread between the exercise price and stock price on the day of exercise is treated as ordinary income (W2 or 1099 income), and that when the stock is sold, the difference between the price on day of exercise and final selling price is treated as a short or long-term capital gain depending on how long the stock is held from the day of exercise..

    • As the long share position is also held on the Global Shares system and it has been identified as coming from an ISO stock option exercise it means that the Global Shares system can track all the different rules around the disposition of an ISO stock option grant and will also notify employees when they are selling that they will be creating a disqualifying disposition if doing so ahead of time.

  • ISO Tax Treatment made easy

    Global Shares ISO stock options software is designed to offer complete control over the granting of ISO stock options so that tax treatment is correctly applied when participants either exercise their ISO stock options or sell the shares that came from an ISO exercise. Global Shares ISO stock options software ensures that:

    The portions of ISO stock options that exceed the $100,000 limitation are taxed as if they are non-qualified stock options along with calculating the withholding taxes and reporting the gain on any exercise of shares that exceeds the limit.

    This includes your company’s matching FICA payments which if not withheld can mean penalties of up to 100% of the amounts that should have been withheld, can include interest and other administrative fees as well as not being able to claim the tax deduction on that income. To ensure you track and comply with all ISO rules to ensure 100% correct ISO tax treatment sign up to get a demo of Global Shares market leading ISO software functionality.

  • Equity Plan Management with Global Shares

  • Have questions about our ISO Stock Options software & services? Our experts would be delighted to discuss your stock plan requirements.

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