Qualifying Disposition

To be a real biker, you have to seem kind of mean. You can be a teddy bear on the inside, but on the outside, you have to look ready to throw down. In short, you have to have a qualifying disposition to be a biker.

This kind of qualifying disposition has to do stock options. (About as far from biker fights as you can get.)

There are a couple of popular programs used to distribute stock-based incentives for employees, such as incentive stock options (ISO) or employee stock purchase plans (ESPP). The qualifying disposition happens when the stock is sold, or otherwise gotten rid of. The employee extracts some value from the stock option. That event triggers a tax liability. The employee must pay based on the capital gains tax rate.

The event (the sale or exchange or transfer) is known as the qualifying disposition.