"Stock options have long been an important feature of many companies’ executive compensation programs, but with the adoption of Financial Accounting Standard No. 123(R), much has been written about their impending death. However, options continue to be an important, if not a primary, vehicle for performance-based executive compensation. Their appeal is due in part to the favorable tax treatment some of them receive under the code. But the future viability of incentive stock options (ISOs) is brought into question by the growing reach of the alternative minimum tax, with more taxpayers subject to the AMT every year. The expansion of the AMT is cause for concern because ISOs are not given the favorable tax treatment under the AMT that they are under the regular tax system. Therefore, in the coming years, executives
with ISOs are likely to receive greater exposure to the AMT and a consequent increased tax liability. This suggests that the appeal of ISOs will diminish and that their use as executive-based compensation may decline."
Read the rest of Are Incentive Stock Options Dead? Originally published by Tax Analysts