What Are Stock Options? And Do You Want Them?

Transferral of stock
While ISOs cannot be transferred during the owner’s lifetime, the stock acquired through the exercise of the ISO is not subject to the same restrictions. Care should be taken to ensure that the gift of stock will not be treated as a disqualifying disposition. If the stock is donated to a charitable organization within one year of the exercise of the ISO, or within two years of the date the employee was awarded the ISO, the donor will realize ordinary income at the time of the donation equal to the difference between the fair market value of the stock on the date of transfer and the strike price. In addition, if the disqualifying distribution results from the contribution being made within one year of ISO exercise, the charitable income tax deduction will be limited to the donor’s tax basis in the contributed stock.