# What is ISO vs NSO? Definition & Technical Mechanics

> **Source:** [SPIDITS AI Startup & Venture Intelligence Glossary](https://spidits.com/startup-glossary)  
> **Category:** Finance & Legal  
> **Canonical Citation:** [https://spidits.com/startup-glossary/iso-vs-nso](https://spidits.com/startup-glossary/iso-vs-nso)

## Definition
Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NSOs) are two types of employee equity options that differ in tax treatment, eligibility, and Alternative Minimum Tax (AMT) triggers.

## Architectural Mechanics & Deep Dive
Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NSOs) are two types of employee equity options that differ in tax treatment, eligibility, and Alternative Minimum Tax (AMT) triggers.

## Industry Applications & Real-World Use Cases
Designing startup equity incentive compensation plans

## Frequently Asked Questions

### What is the primary tax difference between ISOs and NSOs?
ISOs can qualify for favorable capital gains tax treatment upon exercise and sale if held long enough, whereas NSOs incur ordinary income tax on the spread at exercise.

### Who can receive Incentive Stock Options (ISOs)?
ISOs can only be granted to full-time employees of the company, whereas NSOs can be granted to employees, advisors, consultants, and board members.

## Related Terminology
- [409a-valuation](https://spidits.com/startup-glossary/409a-valuation)
- [cap-table](https://spidits.com/startup-glossary/cap-table)
- [vesting](https://spidits.com/startup-glossary/vesting)

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*From the SPIDITS AI Knowledge Base (311+ terms indexed). Explore full technical definitions: [https://spidits.com/startup-glossary](https://spidits.com/startup-glossary)*