Why year‑end planning matters
Investors who hold a large share of their net worth in one stock face two simultaneous challenges as the calendar year closes: concentration risk and potential tax liability if they sell. A well‑timed year‑end plan can lower the tax bill, preserve after‑tax proceeds, and help you diversify without dramatic market timing.
In my practice working with executives and concentrated‑holdings clients, the actions that produce the best outcomes are rarely single moves. They are coordinated steps—some taxable, some tax‑efficient—that balance cash needs, capital‑gains timing, and rules like the wash‑sale restriction or the $3,000 capital loss offset limit (see IRS guidance on capital gains and losses).
Authoritative context: the IRS covers capital gains, losses, and investments in Publication 550 and Publication 526 (charitable contributions). The net investment income tax (NIIT) and capital gains rate brackets also affect high‑income investors; review IRS resources for the latest thresholds (IRS.gov).
Core year‑end moves to consider
- Tax‑loss harvesting
- What: Realize losses on depreciated holdings to offset capital gains from selling appreciated concentrated stock. If losses exceed gains, up to $3,000 ($1,500 if married filing separately) of net capital loss can offset ordinary income per year; the remainder carries forward (IRS, Publication 550).
- Key caution: avoid triggering the wash‑sale rule — do not buy a ‘‘substantially identical’’ security within 30 days before or after the sale or the loss is disallowed (IRS, Publication 550).
- Stagger sales across tax years
- What: Sell portions of the concentrated holding across two or more calendar years to avoid pushing yourself into a higher capital‑gains bracket or into NIIT thresholds.
- When it helps: If a large one‑time sale would create a big jump in taxable income, spreading sales can preserve lower long‑term capital gains rates (0/15/20% federal tiers) and reduce NIIT exposure.
- Donate appreciated shares to charity
- What: Donating long‑term appreciated stock directly to a qualified charity generally allows you to deduct the fair market value and avoid capital‑gains tax on the appreciation (IRS, Publication 526).
- Practical use: Use this for stock you planned to sell and gift anyway, or route donations through a donor‑advised fund (DAF) to time the tax deduction while awarding grants over several years.
- Use hedging or collars (if available)
- What: For taxable accounts, you can use collars (buy puts/sell calls) or buy protective puts to reduce downside between now and a planned sale. For insiders and company employees, 10b5‑1 plans provide a pre‑arranged trading schedule that avoids the appearance of trading on nonpublic information.
- Tradeoffs: Hedging can be costly and may affect tax characterization of subsequent sales; coordinate with a tax advisor and broker.
- Consider non‑taxable or tax‑deferred alternatives
- Exchange funds (private pooled funds), loans against concentrated stock (margin or securities‑backed loans), or a partial in‑kind stock distribution (401(k) NUA strategy for employer stock) can defer taxes or shift character of gain. These options are complex and typically need specialist advice.
Tax mechanics you must know
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Long‑term vs short‑term gains: Selling shares held longer than one year triggers long‑term capital gain rates (generally lower than ordinary income rates). Short‑term gains are taxed as ordinary income.
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Wash‑sale rule: Disallowed losses if you repurchase substantially identical securities within 30 days before or after the sale (IRS guidance). The disallowed loss is added to the basis of the replacement shares.
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Capital loss limitation: Up to $3,000 per year of net capital losses can offset ordinary income, with any remaining losses carrying forward indefinitely (IRS Publication 550).
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NIIT: A 3.8% net investment income tax can apply to high earners and can materially increase effective tax on capital gains (IRS materials on NIIT).
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Basis documentation: Keep accurate records of cost basis, adjustments, and corporate actions. Basis mistakes are a common source of unnecessary tax payments.
Practical year‑end checklist (timeline)
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October–November
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Reconcile basis records and outstanding lots.
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Identify lots that are clearly long‑term and lots that are short‑term; prioritize harvesting long‑term gains or losses appropriately.
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Run scenarios: simulate partial sales across years to see tax‑bracket and NIIT impacts.
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Early December
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Execute tax‑loss harvesting trades, ensuring you don’t violate wash‑sale timing (avoid repurchasing substantially identical securities for 31 days after sale).
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If donating appreciated stock, transfer shares to charity or DAF to ensure delivery occurs by Dec. 31 for the deduction year.
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Mid–late December
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If you plan a large sale, consider splitting across multiple trades and tax years; set limit orders or a 10b5‑1 plan if you are an insider.
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Discuss with your tax pro if a concentrated sale will trigger state tax or AMT/NIIT consequences.
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After year end
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Confirm trade settlement dates and charitable receipts; update tax return projections and carryforwards.
Advanced and structural strategies
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In‑kind charitable gifts and DAFs: Giving appreciated stock directly and then directing the DAF over time preserves the tax benefit while smoothing giving.
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Net Unrealized Appreciation (NUA): If you hold employer stock in a qualified retirement plan, a distribution that uses NUA treatment can result in ordinary income on cost basis and capital gains treatment on the appreciated portion when sold. This is a specialized strategy—coordinate with your plan administrator and tax advisor.
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Exchange funds and private pooled solutions: These let you swap concentrated stock into a diversified basket without immediate recognition of the full gain. They have investor‑eligibility and lockup constraints.
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Installment sale and structured monetization: Spreading capital gains through an installment sale or selling to a trust can smooth taxes over multiple years.
All advanced options carry tradeoffs—liquidity, fees, lockups, and counterparty risk. Use specialists to model after‑tax outcomes.
Common mistakes I see in practice
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Waiting until December 31st to decide. Many moves need lead time for settlement, charity transfer, or pre‑arranged trading plans.
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Ignoring wash‑sale timing when harvesting losses; the disallowed loss can create surprise basis adjustments.
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Overlooking NIIT and state taxes—these can erase expected savings from spreading sales.
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Using hedges without considering tax consequences; certain option strategies can change the holding period or result in short‑term gains.
Example scenarios (realistic, anonymized)
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Scenario A — Spread sales to manage brackets: A client had $1.2M in gains if sold in a single year, which would have pushed them into the highest capital‑gains bracket and triggered NIIT. By selling 40% in year one and the remainder the next year, the client kept most gains in the 15% federal bracket and avoided $30k+ in additional NIIT and surtax consequences.
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Scenario B — Charitable route: Another client wanted to gift to charity and avoid a large gain. Donating long‑term shares to a DAF provided an immediate deduction at fair market value and avoided capital gains, while leaving cash to be granted over several years.
(In my practice, these examples are representative of typical outcomes when trades are coordinated with tax projections and an integrated wealth plan.)
Where to get help and what to ask
- Talk to a CPA or tax attorney before executing large sales—they can run after‑tax scenario modeling and identify state‑level traps.
- Coordinate with your broker and custodian early to confirm transfer instructions and settlement timing for charitable gifts or lot selection.
- If you’re an insider, speak with compliance and counsel about 10b5‑1 trading plans and blackout windows.
Useful FinHelp resources:
- Managing Concentrated Stock Positions: Step‑by‑Step De‑Risking (practical exit plan) — https://finhelp.io/glossary/managing-concentrated-stock-positions-step-by-step-de-risking/
- Optimizing Capital Gain Timing for Concentrated Stock Events — https://finhelp.io/glossary/optimizing-capital-gain-timing-for-concentrated-stock-events/
- Coordinating Charitable Gifts Around Market Volatility — https://finhelp.io/glossary/coordinating-charitable-gifts-around-market-volatility/
Final tips and professional disclaimer
- Prioritize documentation: trades, transfer confirmations, and receipts matter at audit time.
- Run multiple scenarios: the lowest‑tax path on paper may not match your liquidity needs or risk tolerance.
- Time and plan early: many of these moves are administrative as much as tax decisions.
This article is educational and reflects standard strategies used by financial planners and tax advisors; it is not personalized tax, legal, or investment advice. For guidance tailored to your situation, consult a qualified CPA, tax attorney, or fiduciary financial advisor.
Authoritative sources: IRS Publication 550 (Investment Income and Expenses), IRS Publication 526 (Charitable Contributions), and IRS materials on the net investment income tax. See IRS.gov and ConsumerFinance.gov for general investor and tax resources.
