Years of RSU vests, option exercises and ESPP purchases can leave a large share of your net worth in one company, usually the same one that pays your salary. Reducing that position is often smart, but selling everything at once can create a large tax bill. Here are the tools we use to do it gradually and efficiently.
1. Choose which shares you sell
Each vest or purchase is a separate tax lot with its own cost basis. Using specific identification, you can sell the lots with the highest basis first, which produces the smallest gain. Lots held more than a year qualify for lower long-term capital gains rates.
2. Spread sales across tax years
Selling over several years keeps more of the gain in lower brackets and can help you stay under thresholds such as the 3.8% net investment income tax. A written schedule, for example selling a set amount each quarter, also removes the temptation to time the market.
3. Pair gains with losses
Losses elsewhere in your portfolio can offset gains on company stock. Harvesting losses through the year gives you more room to sell. Watch the 30-day wash-sale rule, which RSU vests and ESPP purchases can trigger.
4. Give shares instead of cash
If you give to charity, donating long-held, appreciated shares generally lets you deduct their market value and never pay tax on the gain. A donor-advised fund lets you make a large gift in a high-income year and grant it out over time.
5. Plan around your income
A sabbatical, a gap between jobs or a year with a business loss can be a good time to realize gains at lower rates. Planning ahead lets you use those years on purpose.
If you are an insider
Employees with access to non-public information may only trade in open windows. A 10b5-1 plan sets up sales in advance, so they can continue through closed windows.
Diversification is an investment decision as much as a tax one. For help with the investment side, see our affiliated firm Circuit Wealth (affiliation disclosure).