incentive stock option (ISO)

Definition from Nolo’s Plain-English Law Dictionary

An option to purchase stock (usually given to senior employees) which provides favorable tax treatment for the option holder, as long as certain holding period requirements are met. If the holding period requirements are met, the options are not taxable at the time they are granted or exercised, and any profit is taxed at long-term capital gains rate instead of ordinary income rates.

Definition provided by Nolo’s Plain-English Law Dictionary.