The short answer: Suppose you hold $4 million of employer stock alongside roughly $3 million in everything else. More than half of your net worth is tied up in one company, and you almost certainly can't unwind that without paying some tax. In fact, anyone who tells you otherwise is selling something. What you can do is control how much you pay, when you pay it, and what you get in return for paying it. There are roughly ten strategies available, ranging from "you could start Monday" to "this requires an attorney and a two-year runway."
But here's the part most people miss: Often, the tax bill is not the underlying reason the position never gets sold. It's the reason people give. More to come on this below.
The conversation almost always starts the same way.
We’ll sit down together, spend a few minutes on the pleasantries, and at some point they mention (a little too casually) that a "pretty good chunk" of their money is in their company's stock. So I’ll ask, “How much is a ‘pretty good chunk’?” Then a number comes out. $3 million... $6 million... $11 million. Sometimes substantially more.
And here's the shape it usually takes. Their company’s stock often significantly outweighs any of their other assets. They’ll have $4 million in company stock. Another $3 million spread across their 401(k), a brokerage account, some cash, maybe a rollover IRA from two employers ago. So there’s a total of $7 million, which is a genuinely remarkable outcome for a career and which, on a statement, looks like a diversified portfolio.
Except it isn't. 57% of everything they've built rides on one company. The other $3 million, which may be diversified beautifully... it's outvoted.
That distinction matters more than people expect because it's the reason this problem stays invisible for so long. Nobody sits down one day and decides to bet the majority of their net worth on their employer. It accumulates. A vest here, an option exercise there, an ESPP purchase every paycheck.
If you’re in this situation, you already know. It’s common sense. Nobody has to be told that having most of their net worth in one stock is a bad idea. You’ve known it for years, and you’ve probably promised your spouse you would deal with it after the next vest, or the next tax year, or some other arbitrary target.
So I ask the obvious question. What's stopping you?
I already know: it’s the tax bill. That’s the answer I’m always told. Every single time.
The tax bill is real. It is also, most of the time, not the only reason.
Let's talk about both.
First, a Warning That Applies Before You Do Anything Else
Before you read any further, there are two situations that change this entire conversation. If either applies to you, stop and get advice before you sell a single share.
Situation 1: If your employer stock is inside your 401(k), do not touch it yet. There's a provision called Net Unrealized Appreciation (NUA) that can allow you move that stock out of the plan and pay ordinary income tax only on its original cost, with the appreciation taxed later at long-term capital gains rates instead. If you have a large, very low-basis position, the difference can be substantial.
It also has a trigger. If you sell the shares inside the plan, or roll them into an IRA, the NUA opportunity is gone permanently. There's no undo button, no amended return, no phone call that fixes it. You could unknowingly erase a six-figure opportunity with a single click in your plan portal on a Tuesday afternoon because you didn’t know any different.
All of my commentary in this article is about stock held outside of a retirement plan, in a taxable brokerage account, which is a different problem with different tools. If your concentration is in the retirement plan, that's a separate conversation and it needs to happen first.
Situation 2: If your shares are founders shares in a C corporation, skip ahead to the QSBS section before you read anything else. For a select group of people, the correct answer is not "How do I minimize the tax" but "How do I make the tax disappear entirely." More on that below.
The Math Isn't Actually the Hard Part
Let's put a number on the thing everyone's afraid of.
Say you have $4 million in your employer's stock and a cost basis of $500,000, which is common for someone who accumulated shares over 15 – 20 years through option exercises, RSU vesting, and/or an ESPP. That's $3.5 million of unrealized gain.
If you sell it all tomorrow at the top federal long-term rate and add the 3.8% net investment income tax, you're looking at roughly $833,000 to the IRS. Before any state tax, and before whatever the surge in income does to your Medicare premiums two years from now.
I’ll just say it... that sucks. Let’s be honest, paying over $800k to the IRS is enough to cause nausea, headaches, and all sorts of other side effects.
But now let’s “war-game” another scenario. Suppose your company has a bad year. Not a scandal, not internal fraud, just a bad year. It could be due to a competitor coming out with a competing product, a disruptor introducing something that changes the industry, or any number of situations. Candidly, these happen all the time to great companies. Suddenly, over the course of a few months, your stock drops 40%.
You just lost $1.6 million. And unlike the tax bill, you got nothing for it.
Let me guess, deep down you don’t believe this is a very realistic scenario. This would never happen to your company, right?
Without going into detail, I’ll just say this. In my 24-year career, I will tell you that not only can it happen, but is has happened. Unfortunately, I’ve seen it with my own eyes more times than I care to admit, and the financial, emotional, and relational wreckage created can be devastating.
The tax on selling a concentrated stock position is a cost you can plan for and spread across years. But the risk in holding a concentrated position is a cost that arrives on a timeline you don't control.
Think about that for a minute. One is a bill; the other is a bet.
Here's the reality that you don’t want to hear. You’ve already made the bet, and you repeat it each morning you don't sell. Holding is not neutral. Holding is an active decision to keep wagering a large portion of your family's security on the performance of one company, in one industry, that also happens to sign your paycheck.
Nobody designs this on purpose. It happens unintentionally by accumulation, one vest at a time, until one day you look up and it's most of what you own.
The Part Nobody Says Out Loud
We’re about to get raw for a minute.
When I push past the tax answer, and I always do, what comes out is something like this: "I know I should. But I've been there twenty-two years. I know what's in the pipeline. I've seen this company come back from worse."
That's not a financial analysis. That's a relationship.
And I want to be careful here, because I'm not going to tell you it's irrational. It isn't. That stock is the physical record of your career. Every share represents a year you showed up, a promotion you earned, a project you spearheaded, or a stretch where you missed dinner more nights than you'd like to admit. The number on the statement isn't just money; it's evidence and the outcome.
In many ways, selling it feels like disloyalty. Disloyalty to the company and possibly to the people still there.
But there’s one other factor that may not be said out loud, but it’s usually there. A lot of people think: if I sell it and it doubles, I'll be the idiot who sold.
Here is my loving rebuttal.
First, you might know more than the market does about your company, but you don't know more about the stock price. These are different claims. For example, you might genuinely have better insight into product quality, culture, or where the leadership is weak. None of that tells you whether the price already reflects it. The market isn't pricing your company's virtue. It's pricing everyone's collective guess, and you're only one voice in that.
Second, loyalty is a relationship between people. Your stock certificate is not a person. The reality is that your company will not notice, thank you, or reciprocate your “loyalty.” I've watched people ride positions down 60% out of a sense of obligation to an organization that would restructure their department on a Thursday without a phone call.
Now, not everyone has this level of attachment. There are plenty of people who are purely stuck on the tax math and would sell tomorrow if the bill were smaller. But please don’t kid yourself, because there are a ton of people who struggle with both. If the emotional piece isn't dealt with, no amount of tax strategy will get the position sold. I've built beautiful, well-optimized plans that were never executed because we solved the stated problem (tax) instead of the one under the surface (emotion).
So here’s the million-dollar question (or, in our case, the four-million-dollar question)... If your entire position converted to cash overnight, no tax due, and you were handed $4 million and asked how to invest it, would you put all of it back into your employer's stock?
100% of the time, the answer I receive is NO.
If that’s you (and it likely is), then here’s the brutal truth:
If you wouldn't buy that much today at this price, then you're not holding it. You're just not selling it. These two are vastly different.
The Solution: 10 Strategies, Simplest to Most Complex
What I’ve outlined below are different strategies to deal with your concentrated stock position. They range roughly from "start this week" to "start planning two years out." The reality is that when we solve this well, we often end up using three or four of these together, not one.
Two important caveats before we start. First, if you're an officer, director, or otherwise an insider, nearly everything below is subject to your company's trading policy, blackout windows, Section 16 reporting, and potentially a 10b5-1 plan with a required cooling-off period before trading can begin. You must build in more runway than you think you need. Second, none of this is advice for your situation. It's a map of what exists. Please talk to your own advisory team before implementing anything. If you don’t have an advisory team, then reach out to us and we can talk through your specific situation.
1. Stop making it worse
The simplest and most immediate move you can make (and the one most often skipped): quit adding to the position.
The ESPP is where I get the most pushback, so let's take it head-on. You’re right: the discount is real. Buying shares at 15% below market is genuinely free money, and I'd never tell someone to walk away from it.
But participating in the ESPP and continuing to hold the stock afterward are two separate decisions.
You can often take advantage of the discount and then sell the shares instead of continuing to add to an already concentrated position. The tax rules depend on how long you hold the shares and can get a little complicated, but generally, selling quickly may mean giving up some favorable tax treatment.
That may still be a worthwhile tradeoff. If 50% or more of your net worth is already tied to one company, saving a little in taxes on newly purchased shares probably isn’t worth making the concentration problem even bigger.
Now, none of these steps alone reduce the problem. They just prevent the hole from getting deeper while you work on the rest.
2. Sell on a schedule
The most boring strategy on this list, and the one that does the most work.
Instead of trying to pick a moment, you commit in advance to selling a fixed amount on a fixed cadence. Maybe it’s 20% of your position each year for five years, or maybe 10% a quarter. Find a schedule that fits your tax picture and your timeline.
Why does this beat waiting for the right time? Because there is no right time, and you’re not going to recognize it if there is. The reality is that people who wait for the right time will sell nothing for six years and then sell everything in a panic during a decline, which is the worst possible sequence. Don’t believe me? I’ve seen it happen, and each of those people thought they would be smart enough to avoid panic selling, too.
A disciplined selling schedule does three things at once:
Two details matter more than people expect. Choosing which specific tax lots to sell is extremely important. Don’t assume your custodian will sell certain tax lots in a certain sequence. You must designate each lot yourself, and if your goal is to minimize current tax, you may want to sell your highest-basis lots first since those carry the smallest gain per share. But you must also pay attention to your holding period, because if you acquired those shares less than 12 months ago, find other high-basis shares that you’ve held over a year. And if you're an insider, a 10b5-1 plan is likely the mechanism, which means setting it up during an open window well before you intend to trade.
Here’s one more consideration that I’ll make you aware of, but admittedly it’s a bit morbid. If you're older or in poor health, there's an argument for holding the lowest-basis shares indefinitely, because depending on how your shares are owned, assets held at death currently receive a step-up in basis and those embedded gains can disappear for your heirs. This is a real strategy, but it's a terrible reason to keep 50% of your net worth in one name. If this is you, I’d still diversify the bulk of your shares but leave a slice.
3. Give shares to family in lower brackets
If you're already planning to support adult children or grandchildren, consider doing it with appreciated stock rather than cash.
When you gift shares, your cost basis goes with them. If the recipient is in a low enough bracket, they may pay 0% on the long-term gain when they sell. In 2026, you can give $19,000 per recipient without touching your lifetime exemption, or $38,000 per recipient if you're married and split gifts.
Now for the trap, because this one catches a lot of well-meaning parents. You must pay attention to the “kiddie tax” rules. I won’t go into the details in this article, but it can derail your gifting strategy if you’re not careful.
It’s also worth confirming the recipient's actual income before assuming the 0% capital gains bracket. The threshold for a single filer in 2026 sits around $49,450 of taxable income, so a decent first job plus a gain of any size could exceed that quickly.
This concept alone isn’t going to solve your concentration issue, but it’s legit, and it can pull double duty within your estate planning.
4. Give your most appreciated shares to a donor-advised fund
This is one of my personal favorites. If you give to charity at all (and many people in this position do), you should almost certainly be giving stock instead of cash.
When you donate appreciated shares held more than a year to a donor-advised fund, two things happen:
Why is donating appreciated stock better? Well, if you write a $50,000 check to your church you've used after-tax dollars. But if you give $50,000 of stock with a $6,000 basis, you can take the same tax deduction while permanently eliminating $44,000 of gain.
Why use a DAF as opposed to giving to the charity directly? Well, the DAF part matters because it separates the tax decision from the giving decision. You can fund it in the year the deduction is most valuable, then grant it out of the DAF to actual charities over future years at whatever pace you like.
Important 2026 changes: Charitable deductions are now subject to a 0.5% AGI floor, meaning the first half-percent of your AGI in giving produces no deduction at all. And for taxpayers in the top bracket, the value of itemized deductions is capped at 35% rather than 37%.
A practical strategy around this is to concentrate or “bunch” gifts together in one year instead of spreading gifts across many years, which the new tax laws now make meaningfully worse. For example, if you give $20,000 a year, you're losing part of it to the 0.5% floor annually. However, if you bunch five years of giving into one large contribution to a DAF, you clear the floor once instead of five times. Ideally, you can time the bunched gifts into the year your income spikes from selling your stock. These two strategies were built to run together.
5. Harvest losses to absorb the gains, using direct indexing
Here's where the rest of your portfolio becomes a tool rather than a bystander.
Capital losses offset capital gains dollar for dollar. So if you can reliably generate losses elsewhere, you can sell concentrated stock and shelter part of the gain.
The problem is that in a rising market, a portfolio of index funds produces almost no losses. The fund is up, so there's nothing to harvest, even though individual stocks inside it are down.
However, there is a strategy known as “direct indexing” that can create more opportunities to harvest losses. Instead of owning an S&P 500 fund, you own a portfolio of individual stocks designed to roughly track an index.
Even when the overall portfolio is up, some individual stocks may be down. Those stocks can potentially be sold at a loss and replaced with similar investments, creating losses that can offset some of the gains from selling your employer stock.
Candidly, owning all 500 stocks in the S&P 500 can be hard to manage on your own (not to mention getting a 72-page account statement every quarter). But the same concept can be implemented in a portfolio of 50–75 stocks when structured properly. When done consistently over several years, this can be a powerful tax-management tool. But it isn’t magic. Losses aren’t guaranteed every year, the portfolio won’t track the index perfectly, and the opportunities generally become smaller over time as the portfolio’s cost basis declines.
This works best as a multi-year program running alongside a selling schedule. Two honest caveats: the benefit is larger in volatile markets than calm ones, and over many years the tax-loss harvesting ability slows as the account's own basis drops.
6. Hedge the position with options
If your problem is that you can't sell fast enough to feel safe, you can buy insurance protection while you unwind. The most common structure I’d consider is called a protective put. It provides a floor on the downside if the value of your shares drops below a certain price.
There are other hedging strategies (such as collars), but those involve more complexity and could trigger unwanted issues. Covered calls generate income and give up upside, but provide almost no downside protection, which is a distinction people routinely get wrong when the strategy is pitched to them as conservative.
Three cautions.
7. Contribute to an exchange fund
Now we're into vehicles that require real commitment.
An exchange fund is a private partnership. You contribute your concentrated shares, other investors contribute theirs, and everyone receives a proportional interest in the combined, diversified pool. No sale occurs, so no tax is triggered. Your original basis carries over to your partnership interest.
This can be a great solution because you get diversification without a tax bill. That sounds like the answer, and for some people it is. But read the terms carefully.
And remember, the deferral is exactly that: deferral. The gain doesn't go away. It carries over to whatever you eventually hold, and someone pays it eventually (unless you die with it).
Sometimes the right answer is an exchange fund. But candidly, when you actually run the numbers, sometimes the right answer is to pay the tax and own something you can sell whenever you want.
8. Understand what a 351 exchange actually does
This one requires a correction, because the internet has largely gotten it wrong, and I keep having to walk people back from it.
A Section 351 exchange lets you contribute securities to a newly formed ETF in exchange for shares of that ETF, without triggering tax. Basis and holding period carry over. Unlike an exchange fund, there's no seven-year lockup and no forced real estate sleeve. You end up holding a liquid, publicly traded ETF.
It sounds like the perfect solution to a concentrated position. But...
It isn't, because it can't accept one. There is something called the 25/50 test that prevents someone from only contributing their concentrated position.
25% rule: No one company can be more than a quarter of your pile. So, for example, if you contribute $1 million total, no single stock can be more than $250,000.
50% rule: Your five biggest companies, added together, can’t be more than half the pile. In other words, on that same $1 million, those five names can’t add up to more than $500,000.
So essentially, a 351 exchange is a tool for reorganizing an already-diversified portfolio, while an exchange fund is a tool for unwinding a concentrated one. They get discussed interchangeably, and they solve opposite problems.
Where a 351 exchange can genuinely help is downstream, after you’ve already reduced the concentrated position and built a more diversified portfolio. The rules can get complicated, but generally, no single company can make up more than 25% of what you contribute, and your five largest holdings can’t make up more than 50%.
There are other requirements that also have to be met, so simply getting your employer stock below 25% doesn’t automatically qualify you. But once your portfolio is sufficiently diversified, a 351 exchange may become another tool worth exploring.
I'd also note that many have raised questions about whether structuring transactions specifically to satisfy the 25/50 test (purely to achieve diversification) matches what Congress intended. In fact, as of now, the Treasury and the IRS themselves are actively examining it. So if you go down this road, do it with people who are thinking about that question rather than ignoring it.
9. Use a Charitable Remainder Trust (CRT)
If your charitable intent is substantial, a charitable remainder trust does something the DAF can't.
You transfer appreciated shares into an irrevocable trust. The trust sells them, and because it's tax-exempt, it pays no capital gains tax on the sale. The full pre-tax proceeds get reinvested into a diversified portfolio. The trust then pays you, or you and your spouse, an income stream for life or a term of years. Whatever remains goes to charity.
Using this approach, you get:
The income you receive is taxable as it comes, under a tiering system, so this is deferral and conversion rather than pure elimination.
Here’s the big catch. Donating shares to a CRT is irrevocable and the remainder genuinely goes to charity. Therefore, this is a strategy for someone who plans to give a significant amount away anyway. If you're doing it purely as a tax play, the math doesn’t always work. Never mind the fact that your kids may have their own opinions.
Any CRT requires an attorney to draft. We coordinate the planning and run the projections, but the documents themselves come from legal counsel.
10. Use a GRAT, particularly for pre-IPO or high-growth positions
A grantor retained annuity trust is primarily an estate planning tool, but it earns a place on the list for a specific situation.
With a GRAT, you transfer shares into a trust and receive an annuity back over a set term, calculated so the gift's present value is near zero. If the stock appreciates faster than the IRS's assumed rate, the excess passes to your beneficiaries with little or no gift or estate tax.
If the stock doesn’t perform well enough, most of the assets simply come back to you through the required payments, so the downside is often limited to the cost and complexity of setting it up.
This strategy shines when you hold something you believe is about to appreciate sharply. That could be pre-IPO shares, a company in a growth phase, or even land or another asset. It’s designed for a scenario where the upside is real but you don't want that upside landing in your taxable estate.
It’s important to note that a GRAT moves future appreciation out of your estate, but it does not reduce your income tax on a sale, and it does not solve your concentration problem by itself. Essentially, it's a complement to the strategies above for people whose estate is large enough that the transfer tax matters, and it needs both an attorney and, for private shares, a qualified appraisal.
There is one important catch. You generally need to survive the GRAT term for the strategy to work as intended. If you die during that period, some or all of the estate-tax benefit may be lost.
A Different Conversation Entirely: Founder Shares and QSBS
Everything above assumes you are paying tax on the gain. For one group of people, that assumption is wrong, and the difference is enormous.
Qualified Small Business Stock (QSBS) under Section 1202 can let you exclude a large share of the gain from federal tax. Not defer it. Exclude it.
Who might this apply to? It applies to founders, early employees, and investors who received stock from the company itself (a domestic C corporation) when that company’s gross assets were under the legal ceiling, and who have held it long enough. The company also must stay a C corporation in a qualifying active business for substantially all of the holding period.
Who might this not apply to? It doesn’t apply to anyone whose shares were issued by an S corporation, an LLC, or a partnership. Those entities cannot issue QSBS. (Holding C-corp QSBS through a partnership or S corp may still work, but that is a different, more complex analysis.) It also does not apply if you bought the shares from another shareholder or on the open market, or if you work at a large public company whose assets were already over the limit when your shares were issued. There is also a list of excluded businesses in the statute, such as health, law, engineering, architecture, accounting, consulting, financial services, hospitality, and several others.
The rules were expanded on July 4, 2025, under the One Big Beautiful Bill Act (OBBBA). Even if you were told years ago that you did not qualify, it’s worth looking into again.
The old rule gave you nothing until year five, but now for stock acquired after July 4, 2025, the exclusion is tiered:
For stock issued after July 4, 2025, the company-level gross-asset ceiling increased from $50 million to $75 million, allowing some companies that previously would have been too large to issue qualifying stock. But it’s important to know the higher threshold is not retroactive so shares issued before the new rule generally remain subject to the $50 million threshold.
Stock acquired on or before July 4, 2025, keeps the prior rules. For stock acquired after September 27, 2010, and on or before July 4, 2025, that generally means a five-year holding period and a 100% federal exclusion. Earlier QSBS can be subject to lower exclusion percentages (generally 75% for stock acquired from February 18, 2009, through September 27, 2010, and 50% for qualifying stock acquired before that). Under the prior rules, the per-issuer limitation is generally the greater of $10 million or 10 times the adjusted basis of the QSBS sold, subject to the detailed rules of Section 1202.
Here’s an example to make it concrete. A founder with $4 million of qualifying stock that has been held long enough and has a near-zero basis can exclude the entire gain from federal tax! That’s a massive tax advantage compared to the tax our earlier executive owed on a similar position.
A few important considerations on QSBS:
If there is any chance this describes you, you need to fully explore the QSBS question before you sell anything. It is the one place on my list where moving too fast can cost you the most.
What a Concentrated Stock Strategy Actually Looks Like in Practice
Nobody uses one strategy. A real plan for our $4 million executive might run something like this.
Immediately: Turn off dividend reinvestment. Stop the ESPP or sell at purchase. Change the RSU default to sell at vest. Confirm whether any of the position is in the 401(k) and confirm the QSBS question is genuinely closed.
Within 90 days: Establish a direct indexing account with the rest of the portfolio, deliberately underweighting the employer's sector and begin generating harvestable losses. Open a donor-advised fund. Set up a 10b5-1 plan during an open window if insider status requires it.
Year one: Sell 20% of the position. Absorb part of the gain with harvested losses. Fund the DAF with the most appreciated shares in an amount that covers several years of intended giving, timed to the income spike. Gift shares to any adult children genuinely in a low bracket.
Years two through five: Repeat. Adjust the pace based on that year's income, harvested losses, and any bracket or Medicare thresholds in play. Consider a protective put during any stretch where the schedule can't move fast enough. If the remaining employer stock becomes a small enough part of a broader, diversified portfolio, a 351 exchange may eventually become an option.
Throughout: Conduct detailed and proactive tax planning and coordinate every sale with your CPA before it happens rather than in April, when the only remaining option is calculating what you already owe.
After five years or so, most of your position is gone, and we’ve been able to spread the tax across multiple years and multiple brackets, eliminate part of it through charitable giving, and partly offset other gains through harvested losses. The result is that your tax situation has been managed effectively and your single-stock risk has been reduced steadily the entire time.
It’s nothing exotic; it’s just several ordinary things done in the right order, on purpose. It’s called planning.
What to Do in the Next Thirty Days
If you have a large, concentrated stock position, you don't need to solve the problem today. But you do need to start, because every one of these strategies works better with runway. As time slips away, several of these stop working altogether and your options become more limited.
A position this size took years to build. It should take years to unwind, deliberately, with the tax spread thin and the risk coming down the whole way.
But it has to start. The plan you’ve been procrastinating about isn’t reducing anything.
Frequently Asked Questions
1. How much employer stock is too much?
Most planners flag anything above 10% to 20% of investable net worth as meaningful single-stock risk. Above 50%, the position is effectively driving your financial outcome regardless of what the rest of the portfolio does.
2. Can I diversify concentrated stock without paying any tax at all?
Almost never, unless the stock qualifies as QSBS, you give it to charity, or you hold it until death and pass it to heirs. Exchange funds and 351 exchanges defer tax rather than eliminate it, and the deferred gain carries over to whatever you hold next. Anyone presenting a tax-free exit on ordinary appreciated stock is either describing a deferral or describing something you should read very carefully.
3. What's the difference between an exchange fund and a 351 exchange?
An exchange fund is a private partnership under Section 721 that accepts concentrated positions, requires a seven-year hold, and must keep at least 20% in illiquid assets. A 351 exchange contributes securities into a new ETF and requires that your contribution already be diversified, with no single holding over 25% and the top five under 50%. Only the exchange fund can accept a single concentrated position.
4. Should I use options to protect my employer stock?
A protective put may be appropriate to limit downside risk while you unwind a stock position, but there is a cost to doing so. Options strategies won’t reduce your position or your embedded gain, and hedging too aggressively can trigger “constructive sale” treatment under Section 1259. Many companies also prohibit insiders from hedging company stock, so check your trading policy first.
5. What is NUA and why does it matter for employer stock in a 401(k)?
Net Unrealized Appreciation (NUA) allows employer stock distributed from a qualified plan to be taxed as ordinary income only on its original cost basis, with the appreciation taxed at long-term capital gains rates when sold. It requires a qualifying triggering event and a lump-sum distribution. Selling the shares inside the plan or rolling them to an IRA permanently forfeits the opportunity, which makes this a decision to get right before you act.
6. Is it better to donate appreciated stock or cash to charity?
For long-term appreciated stock, donating shares is almost always better. You deduct the full fair market value, subject to a 30% AGI limit for appreciated property given to public charities, and the embedded capital gain is eliminated entirely rather than deferred.
7. How did the 2026 charitable rules change donor-advised fund strategy?
Beginning in 2026, itemizers face a 0.5% AGI floor before any charitable deduction applies, and top-bracket taxpayers see the value of itemized deductions capped at 35%. Both changes favor concentrating gifts into fewer, larger years rather than spreading them evenly, which makes bunching several years of giving into a donor-advised fund more valuable, especially in a year when income spikes from selling stock.
8. Can I gift appreciated stock to my kids so they pay less tax?
You can, and if the recipient's taxable income is low enough, they may pay 0% on the long-term gain. The kiddie tax can defeat this for if you’re not careful, since the gain in that situation would be taxed at the parents' rate. In 2026, the annual gift exclusion is $19,000 per recipient, or $38,000 for married couples splitting gifts.
9. What are founder shares and how are they taxed differently?
The term “founder shares” generally means stock received directly from a company at formation or in its early stages. When issued by a domestic C-Corp meeting the requirements of Section 1202, they may qualify as Qualified Small Business Stock (QSBS), allowing a substantial portion of the gain to be excluded from federal tax entirely rather than merely deferred.
10. Did the QSBS rules change in 2025?
Yes, significantly. For stock acquired after July 4, 2025, a tiered exclusion applies: 50% at three years, 75% at four years, and 100% at five years. The dollar limitation increased from $10 million to $15 million, subject to the alternative 10-times-basis limitation, and the company gross-asset ceiling increased from $50 million to $75 million for stock issued after July 4, 2025. Stock acquired on or before July 4, 2025, remains subject to the prior rules, including the historical 50%, 75%, or 100% exclusion percentage applicable based on when the stock was acquired.
11. How long should it take to unwind a concentrated position?
For most people, three to five years is a reasonable planning horizon. That's long enough to spread the gain across multiple tax years and take advantage of harvested losses and charitable timing, and short enough that you're not carrying serious single-stock risk indefinitely. Insiders subject to blackout windows and 10b5-1 requirements should expect to add runway.
12. What if I'm confident my company's stock will keep going up?
That may well be true, and it still doesn't argue for holding half your net worth in it. The question isn't whether the stock will rise. It's whether you can afford to be wrong, and whether you'd voluntarily buy this position at this size today if you were starting from cash.
Sources and Notes
[i] QSBS provisions. Changes to Section 1202 under the One Big Beautiful Bill Act, signed July 4, 2025: tiered exclusion of 50%, 75%, and 100% at three, four, and five years respectively for stock acquired after July 4, 2025; per-issuer cap increased from $10 million to $15 million; aggregate gross asset threshold increased from $50 million to $75 million; both indexed for inflation beginning after 2026. Stock acquired on or before July 4, 2025 remains subject to the prior five-year holding period and $10 million cap. Sources: Perkins Coie, "Significant Changes by the One Big Beautiful Bill Act to the Qualified Small Business Stock Provisions of Section 1202"; Holland & Knight; Baker Tilly; Mintz. Note that gain subject to the 50% and 75% exclusions is taxed at a 28% rate plus the 3.8% net investment income tax, producing effective federal rates of approximately 15.9% and 7.95%. Many states do not conform to Section 1202.
[ii] 2026 charitable deduction changes. The 0.5% AGI floor on itemized charitable deductions and the 35% cap on the value of itemized deductions for top-bracket taxpayers both take effect in the 2026 tax year under OBBBA. Sources: Taft Law, "Charitable Giving After the OBBBA: The 2026 Outlook"; Windes; REN. The 30% AGI limitation on gifts of appreciated property to public charities, with five-year carryforward, is longstanding law under Section 170.
[iii] 2026 figures. Annual gift tax exclusion of $19,000 per recipient and the federal estate and gift exemption of $15 million per individual are per IRS Revenue Procedure 2025-32. The approximate $49,450 threshold for the 0% long-term capital gains bracket for single filers is a 2026 figure and should be confirmed against the taxpayer's actual filing status and taxable income.
[iv] Exchange funds. The seven-year holding period and the requirement that at least 20% of fund assets be held in illiquid qualifying assets arise from partnership rules under Section 721 and related provisions. Accredited investor and qualified purchaser standards are defined under SEC rules and the Investment Company Act of 1940 respectively. Minimums, fees, and stock acceptance limits vary by sponsor. Source: Kitces, "When To Use Exchange Funds To Diversify Concentrated Holdings" (April 2026).
[v] Section 351 exchanges. The 25/50 diversification test derives from Section 368(a)(2)(F): no single security may exceed 25% of the contributed portfolio and the top five holdings may not exceed 50%. Sources: Kitces, "Using Section 351 Exchanges To Tax-Efficiently Reallocate Portfolios" (January 2026); Morningstar, "The ETF Tax Loophole That Wall Street Is Exploiting" (March 2026), which discusses the policy questions raised by structuring these transactions specifically to achieve diversification.
[vi] Illustrative example. The $4 million position with a $500,000 basis, and the resulting federal tax of approximately $833,000, assumes the entire $3.5 million gain is long-term and taxed at the top 20% federal rate plus the 3.8% net investment income tax. It excludes state income tax and any indirect effects such as Medicare IRMAA surcharges. This is a hypothetical illustration based on stated assumptions, not a projection of any specific outcome.
[vii] Constructive sale rules appear at Section 1259. Net Unrealized Appreciation treatment appears at Section 402(e)(4). Rule 10b5-1 plan requirements, including cooling-off periods, are set by SEC rule and were amended in 2022; specific timing requirements should be confirmed against current SEC guidance and your company's trading policy.
Nothing in this article is individualized investment, tax, or legal advice. Suitability of any strategy depends entirely on your specific circumstances.
Nick Murphy, CFP® is the founder of Counterweight Private Wealth, a fee-only, fiduciary wealth management firm serving high-net-worth individuals navigating significant financial transitions. Counterweight provides comprehensive financial planning, tax strategy, tax preparation, and investment management.
This article is for informational purposes only and does not constitute personalized financial, tax, or legal advice. Please consult qualified professionals regarding your specific situation.