A Qualified Stock Option (QSO) is a type of employee stock option that meets specific requirements set by the Internal Revenue Code. These options allow employees to purchase company stock at a predetermined price, known as the exercise price, often lower than the market value. QSOs provide tax advantages, as employees typically do not pay taxes when they exercise the options, but rather when they sell the stock. To qualify as a QSO, the options must be granted under a formal plan approved by shareholders and must be exercised within a certain time frame. Additionally, the employee must hold the stock for at least one year after exercising the option to benefit from favorable long-term capital gains tax rates. This structure encourages employee retention and aligns their interests with those of the company, such as employee performance and company growth.