> How does that defeat the whole point? The entire point of ISOs is that you can exercise without being taxed immediately. Not exactly - you're still taxed, bu

> How does that defeat the whole point? The entire point of ISOs is that you can exercise without being taxed immediately. Not exactly - you're still taxed, but only via AMT, not regular income tax. > After leaving a company, I would much rather have NSOs that I can hold onto, unexercised, until after a liquidity event when the alternative is having nothing. Sure, but that's not really an option either. NSOs also expire (and again, the requirement for having an expiration comes from the IRS). So if the liquidity event takes too long to happen, you might still end up with nothing. There are a number of companies that are already bumping against this problem. > (I mean, really, though, overall the need for ISOs is ridiculous: the US is insane for taxing unrealized gains in the first place.) That's not what's happening. ISOs exist in order to allow companies to provide shares to employees below market rate at the day they vest. The difference between market rate and the actual rate paid is taxable, because that does represent a gain realized. This is only a problem for companies that expect to grow rapidly (ie: startups). If the growth rate is low, the spread isn't large enough to hit the thresholds to be taxed - or, if it is, not large enough for those taxes to be burdensome. But since startups plan to grow very rapidly, everyone (from founders and early employees to late-stage-but-pre-IPO employees) get the short end of the stick.