Managing a Concentrated Stock Position Before Year-End
Whether it came from equity compensation, an inheritance, or decades of buy-and-hold, a concentrated stock position creates a specific kind of risk — and a specific set of tools to manage it.
Whether it came from equity compensation, an inheritance, or decades of buy-and-hold, a concentrated stock position creates a specific kind of risk — and a specific set of tools to manage it.
A concentrated position — one stock making up a large share of your net worth — usually gets there for a good reason: years of equity compensation, a company you helped build, or a stock your family has held for decades. The reason it got large doesn't change the risk it creates now.
The hard part isn't recognizing the risk. It's that reducing a concentrated position usually means realizing a large capital gain, and the tax bill on that gain is often the thing keeping people from acting. There are more ways to manage that trade-off than most people realize.
Why “Just Sell It” Isn't Always the Answer
Selling a low-basis position all at once can push you into a higher capital gains bracket for the year, trigger the net investment income tax, and in some cases affect Medicare premiums two years out through IRMAA. That doesn't mean you shouldn't sell — it means the timing and structure of the sale matter as much as the decision to sell.
A Structured, Multi-Year Sale
Spreading a sale across several years, sized to stay within a target tax bracket each year, is the most straightforward tool available. It's not exciting, but it's often the most tax-efficient option, particularly when paired with tax-loss harvesting elsewhere in the portfolio to offset some of the realized gain.
Exchange Funds — An Option, But Not Always the Right One
An exchange fund lets you contribute a concentrated stock position to a pooled fund alongside other investors' concentrated positions in exchange for a diversified interest in the combined fund, without triggering a taxable sale. It's worth knowing this exists, but it comes with real trade-offs: a required holding period, typically seven years, sharply reduced liquidity during that window, and fund-level fees that a structured sale or charitable strategy don't carry. For some large positions the tax deferral is worth the lockup — but an exchange fund only trades one concentration risk (a single stock) for a different one (a single fund, whose underlying holdings you don't control), and it's rarely the first tool we reach for. It's usually worth ruling out a multi-year sale or charitable strategy first.
Charitable Vehicles, If Giving Is Already Part of Your Plan
If you're already charitably inclined, contributing appreciated stock to a donor-advised fund or a charitable remainder trust avoids capital gains tax on the contributed shares entirely, while still generating a deduction (subject to 2026's new AGI floor for itemizers) or, with a charitable remainder trust, an income stream for a period of years before the remainder passes to charity.
Qualified Small Business Stock, for the Right Situation
If your concentrated position is stock in a qualifying small C-corporation — often relevant for founders or early employees — Section 1202 may let you exclude a significant portion of the gain entirely. The One Big Beautiful Bill Act expanded this meaningfully for stock issued after July 4, 2025: a higher exclusion cap, a larger company-size threshold, and, notably, exclusion percentages that now phase in starting at a three-year holding period instead of requiring a full five years. This is a narrower tool than the others here, but a valuable one when it applies.
The Windward Approach
There's rarely one right answer for a concentrated position — the best combination of tools depends on your basis, your time horizon, your liquidity needs, and whether charitable giving is already part of your plan. We model these options together rather than treating the sale decision as separate from the rest of your tax picture.
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