ISOs are designed to offer favorable tax treatment compared to NSOs. If certain conditions are met, gains from ISOs can be taxed at the long-term capital gains rate rather than the higher ordinary income tax rate. The key conditions include holding the shares for at least two years from the grant date and one year from the exercise date. However, it’s essential to be aware of the Alternative Minimum Tax (AMT), which can apply when ISOs are exercised, potentially leading to a higher tax bill in the year of exercise.