Even just only taxing it once it is sellable stock would be a huge improvement. Getting stuck with a taxbill for something you can't actually sell is ridiculous.

Phantom Stock:

http://en.wikipedia.org/wiki/Phantom_stock

"Phantom stock grants and vesting agreements align employees' motives with owners' motives, i.e. increasing stock prices, while avoiding both taxable compensation and the need to give recipients voting or other rights typically associated with shares."

This would already be true in the states if not for AMT. :(

Yes, there's the AMT trap for ISOs, but there's also an AMT credit that nobody ever seems to talk about, so net-net the AMT issue typically isn't as bad as some people make it out to be.

AMT credit is useful, but typically the issue is that 1. the taxpayer may not have savings to cover initial AMT and 2. the underlying security is volatile and could lose all value. If the security is just taxed a the time of sale, then the taxpayer definitely has the funds to pay (and the amount can be straight-up withheld) and no complex AMT schedules have to be filed.

AMT helps the government get paid sooner than later for fast-growing companies. This mechanism doesn't have to affect non-C-level execs to be effective.

You've made a better argument for revisiting the AMT than you have for revisiting the structure of ISOs.

Only for ISOs though, not NSQOs.

It'll never happen. It'll be perceived as yet another tax break for the rich/well-off. :(

And the "socialist" UK which does this and even gives employee share options special exemptions eg you can transfer vested options into your ISA with no tax.

Doesn't the company have to run an "approved" share option scheme to get all of the tax benefits? I've been offered "unapproved" options before (not recently though) and they would have been pretty ruinous as I think I would have to paid income tax on them and CGT on any gains.

Well then your employer should have done an approved scheme - but GCT only applies when you sell and have a gain greater than your CGT allowance unlike the USA

For non UK residents the first $16k of CGT in a year is not taxed.

It was a small company with no outside investors and they didn't want to spend the money to get an approved scheme setup. I left before it became an issue for me.

Of course, it's very early stage companies that you really want options in...

If they don't take care of their early employee's by doing things right then its huge red flag

Can you elaborate on this? It sounds like it would be very useful for me in my current situation.

I assume you in the UK?

https://www.gov.uk/tax-employee-share-schemes/overview

I exercised some ISOs recently and my accountant told me that they weren't taxed until I sold them?

In the US, the difference between "fair market value" and exercise price is subject to AMT. The short explanation is that if you exercise ISOs, you need to calculate your tax under AMT rules (which consider the spread taxable income) as well as normal rules and pay whichever is more.