As a financial advisor, there’s the behavior I wish people would take, and then there’s the path of least resistance.
Owning company stock typically adheres to this dichotomy. One option involves taking action, often at regular intervals as shares vest, and the other doesn’t.
When I work with clients who receive equity compensation, such as RSUs, one of the first habits we build is selling RSUs as they vest. When they vest, the shares' value is taxed as ordinary income and becomes your cost basis. Selling right away usually means little or no additional capital gain, and the proceeds go into a diversified portfolio instead of piling up in your employer's stock.
But many clients come to me after years of letting vested shares accumulate. The stock has done well, which is great, and now they're sitting on a large, concentrated position with big unrealized gains. They know it's time to diversify. They also know that selling everything at once could trigger a painful tax bill.
I'll be honest. There's no true loophole that makes the tax disappear. But there are solid strategies that either defer the tax (spreading it over several years, ideally into years when you're in a lower bracket) or reduce it through thoughtful charitable giving. Below, I walk through the main options, who each one fits, and the trade-offs.
There’s one ground rule before we start. Charitable strategies only make sense if you already give, or want to start giving. A charitable deduction never leaves you with more money than simply keeping the stock and paying the tax. It just makes giving you'd do anyway more efficient.
The simplest option is often underrated. Yes, the tax bill arrives all at once. But think of that bill as money that was never really yours. It's a liability embedded in the stock the moment it appreciated. Paying it now means the rest of your money is fully diversified today, not three or five years from now.
Waiting for a lower bracket also tends to save less than people expect. Long-term capital gains have their own brackets, separate from ordinary income. For 2026, married couples filing jointly pay 15% on gains until taxable income passes $613,700, and 20% above that (single filers: $545,500). On top of that, the 3.8% Net Investment Income Tax (NIIT) applies once modified AGI exceeds $250,000 for joint filers ($200,000 for single filers). For most HENRYs (High Earners, Not Rich Yet), those thresholds mean the federal rate is about the same whether you sell at once or over several years.
Where this really shines: moving to a higher-tax state. I worked with a client who lived in Texas and was relocating to California. Selling her concentrated position before the move meant the gain was realized while she was a Texas resident, so California couldn't tax it. That saved her California's top rate of up to 13.3% on the gain.
The key was proving residency. We worked with her CPA to document that she was a Texas resident on the sale date: lease or home sale, driver's license, voter registration, and the date she actually moved. California's Franchise Tax Board scrutinizes part-year moves closely. One nuance: California taxes part-year residents on income earned while they're residents, but uses your total income to set the rate on that California income. So a large Texas-era gain can still push up the rate on wages earned after the move. Your CPA should model this.
Best for: people who want to diversify immediately, are moving from a low- or no-tax state to a higher-tax one, or whose gain would be taxed at the same federal rate regardless of timing.
If selling all shares at once and taking the tax hit all in one year is unappealing, you could spread the tax bill out over multiple tax years. Selling in tranches, say a third per year for three years, spreads the gain across several tax returns. The trade-off is that you stay concentrated longer. If the stock drops 40% in year one, the tax you deferred won't feel like much of a win.
So why might you choose this route over selling at once? This can pay off if your income may meaningfully change. Examples include a sabbatical, a gap between jobs, a spouse leaving the workforce, or early retirement before Social Security and pensions start. In a low-income year, some gains may even fall in the 0% bracket (up to $98,900 of taxable income for joint filers in 2026).
Two details make tranche selling work better:
Deferral is especially valuable if you live in a high-tax state today and are confident you'll move to a lower-tax state soon. The capital gains realized after you establish new residency are generally taxed by the new state, not the old one.
Best for: clients expecting a lower-income year, a move to a lower-tax state, or who can tolerate a few more years of concentration risk.
An exchange fund lets you swap your concentrated shares for a slice of a pooled, diversified portfolio without selling. Many investors, each holding a different concentrated stock, contribute shares to a private partnership. Because contributing property to a partnership isn't a sale, no tax is due when you go in.
The main rules and features:
The catch here is that this is deferral, not elimination. Your original low cost basis carries over to the basket you receive, so you'll owe the tax whenever you eventually sell those shares (unless you hold them until death and your heirs get a step-up in basis). Expect annual fees of roughly 0.5% to 1%, plus early-exit penalties.
Best for: high-net-worth clients with a large, very low-basis position who don't need the money for seven years and want immediate diversification without a tax bill.
Tax-loss harvesting means selling investments in your taxable account that are down, then using those losses to cancel out gains from selling company stock. Losses offset gains dollar for dollar. Up to $3,000 of extra losses can offset ordinary income each year, and anything left over carries forward indefinitely. There are a few ways to manufacture more losses to harvest.
Instead of buying an S&P 500 fund, you own the individual stocks in the index (often 200 to 500 of them) in a separately managed account. Even in a good year, some stocks fall, and each one can be harvested. A bonus for this audience: the account can exclude your employer and underweight its sector, so it diversifies around your concentrated stock.
These go further by adding leverage, for example, holding 130% long and 30% short. The extra positions generate larger losses, sometimes enough to offset a big gain within a year or two.
I build the taxable portfolio from several low-cost index funds, each tracking a different index (US large cap, US small cap, developed international, emerging markets, and so on). When one is down, I sell it and buy a similar fund that tracks a different index, so you stay invested without triggering the wash-sale rule. You get meaningful harvesting opportunities, low costs, a clean tax return, and a portfolio that's easy to manage or move. It won't produce as many losses as direct indexing, but it avoids most of the drawbacks.
Whichever approach you use, watch your company stock. If you sell company shares at a loss and new RSUs vest (or ESPP shares are bought) within 30 days before or after, that's a wash sale and the loss is disallowed.
Two honest caveats. First, harvesting is deferral: each harvest lowers your cost basis, so you pay later when you eventually sell. Second, opportunities shrink over time. Markets rise more often than they fall, so a portfolio funded once will drift into gains and offer fewer losses each year. Harvesting works best when you keep adding new money, such as proceeds from the company stock sales themselves.
If you're charitably inclined, your lowest-basis company shares are the best thing you can give. When you donate shares held for more than a year, you skip the capital gains tax entirely and can deduct their full market value. Then you can use the cash you would have donated to buy diversified investments. In effect, you're swapping low-basis stock for full-basis cash.
A DAF is a charitable account held at a sponsor like Fidelity Charitable or Schwab Charitable. You contribute shares, take the deduction that year, and the sponsor sells them tax-free. You then recommend grants to charities whenever you like, this year or over the next decade. The DAF separates when you take the deduction from when the charities receive the money.
That makes bunching possible. Instead of giving $15,000 a year, you might put five years of giving, $75,000, into a DAF in a single high-income year, itemize that year, and take the standard deduction in the other four.
The 2026 rules make the math more important:
A CRT is an irrevocable trust that pays you, and optionally your spouse, an income stream for life or a term of up to 20 years. Whatever remains at the end goes to charity. You contribute your shares, and the trust sells them without paying tax because it's tax-exempt, then reinvests in a diversified portfolio.
The benefits:
The rules: payouts must be at least 5% a year, and the projected charitable remainder must be at least 10% of the initial contribution. The trust is irrevocable, and setup and annual administration typically run a few thousand dollars a year. It's built for larger positions, typically several hundred thousand dollars or more.
Best for: people who give generously, want a lifetime income stream, and are comfortable that a meaningful share of the money will ultimately go to charity rather than heirs.
This one is harder to make work, but it can pay off. When you gift shares, the recipient takes over your cost basis and holding period. If they're in a lower bracket, potentially the 0% capital gains bracket, they can sell and pay less tax than you would. Remember that the money is now theirs, so only do this if you genuinely intend to give it.
The kiddie tax taxes a child's investment income above $2,700 (2026) at the parents' rate, which defeats the purpose. It applies to:
In practice, this strategy works best for children 24 or older, or younger adults who are financially self-supporting, and who are still in a low bracket.
If your parents are in a lower bracket, you could gift them shares to sell and diversify. Alternatively, they could hold the shares, and if you later inherit them, you'd receive a step-up in basis and could sell without capital gains tax. Note that holding keeps all of the concentration risk in place.
The step-up has an important exception: if your parent dies within one year of receiving the gift and the shares come back to you (or your spouse), there's no step-up. You keep your original low basis. Other considerations:
Coordinate with your parents, siblings, and an estate attorney before doing this so there are no surprises later.
You can give up to $19,000 per person per year ($38,000 for a married couple splitting gifts) with no paperwork. Larger gifts require filing a gift tax return (Form 709), but no tax is due until your lifetime gifts exceed the $15 million exemption.
Most clients don't pick just one strategy. A typical plan might give the lowest-basis lots to a DAF, sell the highest-basis lots now, and spread the rest over two or three years while harvesting losses in the new diversified portfolio. Whatever the mix, start by deciding how much concentration risk you're willing to carry and for how long. Then let taxes shape how you get there, not whether you do.
Each of these strategies has costs, rules, and paperwork, so work closely with your financial planner and CPA. They can confirm the tax savings are real for your situation and that everything is implemented correctly.
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About the author
Carla Adams is a CERTIFIED FINANCIAL PLANNER® practitioner who specializes in helping women build strong financial plans around their equity compensation, including Restricted Stock Units (RSUs) and company stock options. With over 15 years of experience in financial services, Carla has in-depth knowledge and expertise geared toward helping clients with complex financial situations. She enjoys boiling down complicated scenarios through practical examples and down-to-earth conversations.
This post is for educational purposes only and does not constitute tax, legal, or investment advice. Tax figures reflect 2026 rules and may change.