An incentive stock option (ISO) gives an employee the opportunity to buy shares of their company’s stock at a specific price, during a specific window of time. ISOs can be a powerful investment tool because they allow you to purchase stock at a discount. However, they also come with risk—and potentially significant tax consequences.

There are a variety of ways that companies can attract and keep employees. Whether through leave options and other paid time-off perks, extensive health care coverage, or the ability to work remotely, companies have no shortage of benefits to offer to stand out from the crowd when attracting talent. For highly compensated employees or employees of startups, you may also be offered compensatory benefits like equity compensation.

If you've been offered stock options as part of your compensation package, you probably have a lot of questions about if, when and how to exercise them. Stock options can be a powerful investment tool because they allow you to purchase stock in your company at a discounted rate.