The best of both worlds can be found in what it termed 'super stock options,' and legislation currently in the House of Representatives to approve such a measure.
Super stock options are advantageous both for employer and employee. If it passes, employers can deduct the cost of the options when the employees exercise them. Employees who exercise options can to defer taxes on profits until shares are actually sold.
To compare super stock options with what is currently available, 'incentive stock options' offer preferential tax treatment for employees who have to pay only a flat capital-gains tax on the appreciation of the stock. 'Nonqualified plans' tax the stock when it is cashed-in, and then again through capital-gains tax on any appreciation.
Although incentive stocks usually are preferred by employees, companies avoid this arrangement because of the limits on the amount that may be given to the employee and the lack of a tax deduction for the company.