Incentive stock options (ISOs) are often part of executive and key employee compensation packages. But these incentives have to be handled carefully to get the most out of them.

“Rules for reporting ISO transactions, and for all types of stock options, are fairly complicated,” said Robbin E. Caruso, a CPA, partner and co-leader of the national tax controversy department at Prager Metis in Cranbury, N.J.

ISOs are issued at a “strike” price per share set by the company; employees typically must complete a vesting period with the company before they can buy shares in an ISO. Employees can then sell the shares later for the their current price, which could be much higher than the strike price. READ MORE