[js2]

> Meaning, if you exercise your options (purchase them at the strike price) you do not have to pay taxes on any profits you make on them.

Huh? You absolutely have to pay taxes on any profit you make when you sell the shares. In addition, you may also need to pay taxes at the time of exercise on the difference between the strike price and the fair market value, in the form of AMT.

http://fairmark.com/execcomp/isoexer.htm

[elbrodeur]

Sorry, that was very poorly worded.

From your link, this is the point I was trying to get across:

"For purposes of the regular income tax, the exercise of an incentive stock option is a non-event. There is no tax — in fact, nothing to report on your tax return — when you exercise an ISO. This is dramatically different from the treatment of nonqualified options. Generally you report compensation income equal to the difference between the fair market value of the stock and the amount paid under the option when you exercise a nonqualified option."

[js2]

You still need to be very careful about this as the difference between strike and fair market counts toward AMT. Folks exercise ISOs and then hold them planning on selling at one year. In the mean time, the market plunges making the shares worthless, yet you still have to pay AMT. Double ouch.