Concentrated Stock Position: 6 Things to Settle Before You Sell

Concentrated Stock Position: 6 Things to Settle Before You Sell

A concentrated stock position is a holding so large that one company's share price can move your whole financial picture. It usually builds up by accident: years of stock grants, vested shares nobody sold or a founder's stake in a company that grew. The tax question arrives when you finally decide to sell some of it, because a low cost basis can turn a sale into a large gain.

This post covers the tax mechanics, not whether to sell. Whether and how much to diversify is a separate decision, and this post does not recommend one. Here are six things to settle before you sell, in the order that helps most. The numbering is a sequence, not a ranking.

One firm to ask about the tax side is Doug Johnson CPA, a Los Angeles firm whose live profile lists Equity Compensation and High Net Worth Individuals as specialties. Doug Johnson CPA is a vetted Sam's List member and a paying member of our featured program; payment does not buy the language we use or its reviews. How we chose is at the end.

1. Identify Each Lot Behind Your Concentrated Stock Position

Your holding is not one block. It is a set of lots, each acquired on a different date at a different cost. A vest in March, a vest in September and an exercise two years ago are three lots, and each has its own basis and its own holding period.

List them. For each lot you need the acquisition date, the number of shares and the cost basis. For shares from restricted stock units, the basis is generally the value reported as income when they vested. For shares bought through a stock plan or option exercise, the basis depends on how you acquired them, and some plans have special rules.

Do this before looking at a tax estimate. A sale estimated on an average basis can be far off, because the average hides lots that are cheap and lots that are not.

The limitation: records for older lots can be incomplete, especially after job changes or broker transfers. Missing basis can be rebuilt, but rebuilding takes time, and the broker's default may be wrong.

2. Plan Tax Lot Selection Before the Sale

Tax lot selection is the choice of which lots to sell. It matters because two sales of the same number of shares can produce very different gains. Selling the oldest lots first, which is what many brokers do by default, is not always the lowest-tax choice.

With specific identification, you tell the broker which lots to sell, generally at or before the time of the trade. Selling high-basis lots first can reduce the gain this year. Selling the lowest-basis lots first can concentrate the gain. Which is better depends on the rest of your income and on your plans for the shares that remain.

Set the method with your broker in advance, in writing where possible, and keep a copy. A choice made after the fact, to produce a favorable result, may not be respected.

The limitation: the lots you do not sell keep their basis, and the low-basis lots will still be there next year. Choosing high-basis lots today can leave a larger gain for later.

3. Check Holding Periods and Long-Term Capital Gains Treatment

The holding period decides the rate. Shares held for more than one year before a sale generally produce long-term capital gains, which are taxed at lower federal rates than ordinary income. Shares held for a year or less generally produce short-term gains, taxed as ordinary income.

In a concentrated position built over several years, most lots are often long-term and a few recent ones are not. A sale that includes a recently vested lot can add short-term gain at a much higher rate. Sometimes waiting a few weeks for a lot to cross the one-year mark changes the bill materially.

Compare the tax difference with the price risk of waiting. A lower tax rate is worth little if the price falls by more than the difference while you wait, so the tax calendar is one input, not the answer.

The limitation: the date a lot is treated as acquired is not always the date you bought it, and some stock plans have their own holding period rules. Check each lot's date with your records.

4. Estimate the Tax on a Concentrated Stock Position and Set Aside Cash

A large sale produces a large tax bill, and it is generally due as you earn the income, not next April. Estimate the federal tax, any state tax and the surtaxes below, and decide where the money will come from.

Here is the illustrative shape, with invented numbers. An employee sells 5,000 shares at $60 for $300,000 of proceeds. The basis in those lots totals $90,000, so the gain is $210,000. If the gain is long-term, it is taxed at long-term rates. If $40,000 of it comes from a lot held under a year, that part is taxed at ordinary rates instead.

Estimated tax payments for the year may need to rise, or the shortfall can lead to an underpayment penalty. Paying through additional withholding from wages, or making an estimated payment after the sale, are common ways to manage it. Many people also set aside a portion of the proceeds at the time of the sale so the money is there.

The limitation: the figures above are illustrative, not a calculation. Your tax depends on your income, filing status, state and deductions, and you should model it before you sell, not after.

5. Account for the Net Investment Income Tax and State Tax

Two layers can sit on top of the federal gain. The net investment income tax is a 3.8 percent tax that applies to investment income, including capital gains, when your modified adjusted gross income is above a threshold. The thresholds are set by statute and are not adjusted for inflation, which means more people reach them over time.

State tax is the other layer. Some states do not tax capital gains at all, and some tax them as ordinary income at rates that can be significant. If you live in one state and the stock was earned while working in another, you may have more than one state to consider.

Add both before you decide how large a sale to make. A gain that looks acceptable at the federal rate can look different once both are included.

The limitation: thresholds and rates change and depend on your filing status, so use the figures for the year of the sale. Also check whether a trading window or blackout period limits when you can sell company shares at all.

6. Consider a Charitable Gift of Appreciated Stock

If you give to charity, giving shares can be more tax-efficient than giving cash. A charitable gift of appreciated stock held more than one year generally lets you deduct the shares' fair market value, within limits, and the gain is not taxed to you when the charity receives the shares.

For many people, that means giving shares from the lowest-basis lots in place of selling them and writing a check. You can give directly to a charity or through a donor-advised fund, which lets you make the gift now and decide on the grants over time.

The deduction has limits as a percentage of your income, and the gift is irrevocable. It is also only attractive if you were already planning to give, because the tax savings are less than the value of the shares you give away.

Doug Johnson CPA is based in Los Angeles, founded in 2024, with three employees, serving clients nationwide. Its live profile positions the firm for growing businesses in the $250,000 to $10 million revenue range and for high earners with equity compensation, and lists SMB Owners, Equity Compensation, High Net Worth Individuals and Growing Companies as specialties.

Doug Johnson CPA has 15 verified client reviews on Sam's List. Each review is submitted by an individual who identifies as a client of the firm and rates it on communication, subject-matter knowledge, and overall satisfaction. Reviews reflect those individual experiences and do not represent an endorsement by Sam's List. Doug Johnson CPA is a paying member of our featured program, and payment does not buy its reviews. Ratings and rankings are not indicative of future performance or results.

The limitation, plainly: the profile lists minimums of $250,000 in income and $250,000 in revenue, so a person with a smaller income may fall outside them. It does not say whether the firm advises on investment decisions, so ask whether it models the tax only and who handles the rest.

Frequently Asked Questions

What is a concentrated stock position?

It is a holding in one company that is large enough to dominate your net worth or portfolio. It often builds from stock grants, option exercises or a founder's shares. The tax issue is that selling can create a large capital gain, depending on your cost basis.

How is the sale of concentrated stock taxed?

The gain is the sale price minus your basis. Gains on shares held more than a year are generally long-term and taxed at lower rates, while shorter holdings are taxed as ordinary income. A 3.8 percent surtax and state tax may also apply.

Can I choose which shares to sell?

Often yes, through specific identification, if you tell your broker which lots to sell at or before the trade. Selling high-basis lots reduces this year's gain but leaves lower-basis lots for later. Without an instruction, many brokers default to selling the oldest shares first.

Is donating appreciated stock better than donating cash?

It can be if you were going to give anyway. Giving shares held over a year generally lets you deduct the fair market value, within limits, and avoid tax on the gain. The gift is permanent, and the tax savings do not exceed the value you give up.

Before you sell, list each lot with its date, shares and cost basis, and note any trading restrictions. You can browse accountants on Sam's List, including the firm above, and ask each one how it models a large sale.

How We Chose This Firm

You should be able to check our work, so here is how this post was built.

The pool. The firm here is a vetted Sam's List member in our featured program with a live public profile that lists Equity Compensation and High Net Worth Individuals as specialties. This is not a survey of every CPA who works with concentrated positions, and many Sam's List members not written up here could fit.

How it is organized. The six items are a sequence to work through, not a ranking. One firm is written up, so there is no order of firms.

What review counts mean here. We cite the firm's verified review count and its date from its profile. A count shows how many clients wrote something down. It does not measure technical quality.

What payment does and does not buy. Listing on Sam's List is free, and so is being named in this article. The firm written up here is a paying member of our featured program, which is why it gets a write-up. What payment does not buy is the language we use about a firm, its review count, or a promise that it fits you.

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About the author: Kimberly Green is the cofounder of Sam's List, where business owners and high earners find vetted CPAs, financial advisors, and fractional CFOs. She's met one-on-one with 400+ financial professionals and writes from the real data behind thousands of client-advisor matches. Ask her anything about finding an accountant - she's heard it all, including the questions people are afraid to ask.