Concentration is how a lot of wealth gets made. One company’s stock, held for years, can grow into most of a family’s net worth.
It’s also how a lot of wealth gets lost. The employees of many once-great companies learned that their paycheck, their bonus and their savings could all fall at once. The reason most people don’t diversify isn’t conviction. It’s the tax bill.
How much is too much?
There’s no universal line, but many planners get uneasy when a single stock passes 10% to 20% of net worth, and more so when it’s also your employer.
Ask: if this stock fell by half and stayed there, would my plans change? If the answer is yes, the position is bigger than your plan can afford.
The strategies
Sell in stages
Spread sales over several tax years to keep gains in lower brackets. Simple, flexible and often the core of the plan.
Sell the highest-basis shares first
Specific share identification lets you sell lots with the smallest gains first.
Offset with losses
Harvesting losses elsewhere in the portfolio can absorb gains from selling the concentrated stock.
Give it to charity
Donating long-held appreciated shares to a charity or donor-advised fund avoids the gain and can provide a deduction for their full value.
Charitable remainder trusts
Contribute shares, the trust sells without immediate tax, and you receive income for years. The rest goes to charity.
Exchange funds
Pool your shares with other investors’ in a diversified fund without selling. Typically for qualified investors, with a multi-year lockup.
Hedging
Collars and other option strategies can limit downside while you hold. Complex, with costs and tax rules of their own.
Gifts to family
Shares given to family members in lower brackets may be sold at lower rates, subject to the kiddie tax and gift rules.
How they compare
| Strategy | Tax impact | Complexity | Best for |
|---|---|---|---|
| Staged sales | Pay gains gradually | Low | Almost everyone |
| Charitable gifts | No gain, possible deduction | Low to medium | People who already give |
| Charitable remainder trust | Gain deferred and spread | High | Large positions, charitable goals, income needs |
| Exchange fund | Gain deferred | High | Large positions, long time horizon |
| Hedging | Defers sale; tax rules apply | High | Insiders or those who can’t sell yet |
Building a plan
- Set a target: what share of net worth the stock should be in three to five years.
- Schedule sales across years and coordinate with bonuses, vesting and other income.
- Pair sales with charitable giving in high-income years.
- If you’re an insider, use trading windows and consider a Rule 10b5-1 plan.
- Remember New York taxes capital gains as ordinary income, on top of federal rates.
- Write the plan down, so a rising or falling price doesn’t talk you out of it.
How Morrowgate helps. Greg sets the target with you and builds a multi-year selling and giving schedule with your CPA, using losses and charitable tools where they fit. The proceeds go into a diversified portfolio in your name at Fidelity, with Schwab available.
Questions people ask
How do I sell a large stock position without paying a lot of tax?
Usually by combining strategies: selling across several years, using losses, giving appreciated shares to charity, and for very large positions, tools like exchange funds or charitable remainder trusts.
Is it better to pay the tax or keep the risk?
Paying tax on part of a gain to reduce the risk of losing much more is often the better trade. It depends on how much of your wealth is at stake.
What is an exchange fund?
A pooled fund where investors contribute individual stocks in exchange for a share of a diversified portfolio, deferring the gain. They typically require qualified investors and a multi-year commitment.
Can I donate stock instead of cash?
Yes. Giving appreciated shares held more than a year avoids the capital gain and can provide a deduction for their full market value, within IRS limits.
Where this guidance stops
This article is general education on concentrated stock strategies: how the rules and the options generally work.
It is not tax, legal or investment advice, and nothing here is a recommendation for your situation. Rules change and outcomes turn on the facts, which is why a CPA and an attorney look at a family’s own numbers before anything is done.