Half your net worth sits in one stock. Maybe more. Sell it, and you owe a capital gains bill that could rival a home down payment. Hold it, and one bad quarter can undo a decade of vesting. Measure both costs, the tax on selling and the loss from a drop, then sell down over several tax years on a schedule you set in advance.
How concentrated is your stock position?
Size your exposure with two numbers.
Divide the value of your company stock by your total investment portfolio. Then divide it by your net worth: every account plus your home equity, minus debts. A stock that is 60% of your portfolio might be 25% of your net worth once your house and retirement accounts are counted.
There is no universal cutoff where concentration turns dangerous. A specific percentage matters less than whether you could still retire, buy the house, or pay tuition if that position went to zero.
Count the equity that hasn’t vested yet
For employees and executives, current holdings understate exposure. Count what you already hold: vested employer shares, exercised options, ESPP holdings, restricted stock. Then count what is coming: RSUs scheduled to vest, unexercised options, and ESPP purchases in the current offering period.
Sell $200,000 of employer stock this year while $250,000 of RSUs vest on schedule, and your concentration barely moves. You have swapped one set of shares for another set of the same company’s stock. The sale raised cash and realized a gain. It did not reduce your exposure.
If you are unsure which type of equity you hold, see the difference between RSUs and stock options. Restricted stock you bought before vesting may have an 83(b) election on file, which fixed its basis and holding period at transfer rather than at vesting.
Understand what happens if the stock falls before deciding how much to keep
Take your current position and ask what happens to your net worth if the stock drops 20%, 40%, or 60%. Write down the dollar loss at each level.
If the stock is your employer’s, the same bad year that cuts the share price tends to shrink the bonus pool, raise the odds of a layoff, and reprice the next round of grants downward. Model the stock drop together with a smaller bonus, smaller refresh grants, and a few months without salary.
Then check each scenario against the goals you have dates for: retirement, a home purchase, tuition, or leaving your job. If the 40% drop misses one of them, you hold too much. That answer should set how much you keep, not a percentage.
This is a stress test, not a forecast. It says nothing about whether the stock will fall.
Build a multi-year plan to diversify your concentrated stock position
Diversifying does not require one massive transaction. For a position built from years of equity compensation, the question is how many dollars of stock to sell this year, next year, and the year after.
Set a target for how much company stock you want to keep
Pick a target share of net worth before you sell a single share. Set it from the stress test above, the equity still coming from your employer, and the cash you will need over the next few years.
Work backward from there. Say you are at 40% of net worth in company stock today, more is vesting, and you want to reach 10% within three years. That target sets how much you sell each year, and that sets each year’s capital gains tax. A “safe” percentage borrowed from an article skips the stress test.
Map sales against your projected income
Capital gains stack on top of whatever else lands in your income that year: salary, bonus, RSU vesting, option exercises, business income, other gains and losses, and any change in employment, including a sabbatical or a retirement year.
Sell the same number of shares in two different years and the tax rate can differ. Federal long-term rates are 0%, 15%, or 20% depending on taxable income, and for 2026 the 20% rate starts at $545,500 of taxable income for single filers and $613,700 for joint filers (IRS Topic 409). Above $200,000 of modified AGI for single filers, or $250,000 for joint filers, the 3.8% net investment income tax applies on top. Shares held a year or less are taxed at ordinary rates instead, up to 37% federal for a high earner.
State tax is a separate layer. Most states with an income tax, California among them, tax capital gains at the same rates as wages, with no preferential rate, so a move to a state with no income tax can change the bill more than any federal bracket does. Nino’s state tax calculators show each state’s rate.
A year with a smaller bonus and no option exercises taxes a stock sale at a lower rate than a year already stacked with vesting income. If RSU or option income is what fills your bracket, see why RSUs are taxed so high and how ISOs and NSOs are taxed at exercise. The RSU tax calculator estimates how much of a vest’s tax your payroll withholding covers.
Account for new shares before deciding how much to sell
Track your position as a simple equation: beginning company stock, plus new vesting, minus planned sales, equals projected year-end exposure. Someone selling steadily while accumulating faster can finish the year more concentrated than they started. Model the full twelve months, including the vests that have not happened yet. Selling shares as they vest keeps new stock from adding to the position, and how RSU withholding works determines how many shares stay in your account by default.
Tax strategies to consider when diversifying concentrated stock
Each of these lowers the tax on part of the sale schedule above. None of them replaces the schedule.
Spread gains across multiple tax years
Spreading sales across years keeps each year’s gain below the bracket threshold you choose, while steadily reducing concentration. The tradeoff: delaying a sale for tax reasons means carrying the investment risk longer while you wait. A 20% drop in the shares you held back can cost more than the bracket you avoided.
Pair gains with available capital losses
Realized losses elsewhere in your portfolio offset realized gains from selling your concentrated position dollar for dollar. If losses exceed gains, you can deduct up to $3,000 against ordinary income each year ($1,500 if married filing separately) and carry the rest forward indefinitely (IRS Topic 409).
The constraint is the wash sale rule. Buy a substantially identical security within 30 days before or after the sale and the loss is disallowed, which makes the window 61 days wide rather than 30 (IRS Publication 550). Decide on the repurchase, or on a replacement fund, before you harvest. Tax-loss harvesting covers the mechanics. Harvest losses that already exist; do not sell holdings you want to keep just to create one.
Donate appreciated shares instead of cash
If you already give to charity, donating shares held more than one year generally lets you deduct fair market value and skip the embedded gain, instead of selling first, paying the tax, and donating what is left (IRS Publication 526). Gifts of appreciated stock face a lower AGI ceiling than cash gifts, and amounts above the limit carry forward for up to five years.
Two rules changed in 2026, and both reduce the benefit. Itemizers can now deduct only the portion of charitable giving above 0.5% of AGI, so a household with $500,000 of AGI loses the deduction on the first $2,500 given. For taxpayers in the 37% bracket, itemized deductions, including charitable gifts, are now worth at most 35 cents per dollar. The core advantage of giving appreciated stock survives both changes, since skipping the capital gain has nothing to do with the deduction, but the deduction on top of it is smaller. One response is to give several years’ worth in a single year, covered next.
Consider a donor-advised fund in a high-income year
A donor-advised fund lets you make one larger contribution, of cash or appreciated stock, in a year when income is unusually high, then grant the money to charities over the years that follow. The deduction lands in the contribution year while the giving decisions can wait. That timing suits a large bonus, a heavy vesting year, or the year you finally sell a block of stock.
The 2026 floor strengthens the case for bunching, since one large contribution clears a 0.5% AGI floor more efficiently than the same total spread thinly across several years. The new $1,000 deduction ($2,000 for joint filers) for people who don’t itemize won’t help here: it covers cash gifts only, and gifts to donor-advised funds are excluded.
For large, long-held positions, exchange funds are worth understanding
An exchange fund pools concentrated stock from many investors into a single partnership. You contribute shares and receive a partnership interest instead of cash, and Section 721 treats that contribution as a non-taxable event rather than a sale.
Deferral is the whole mechanism. Your original cost basis carries through the partnership and onto the diversified shares you eventually receive, so the gain is postponed and you pay it when you sell those shares.
Three constraints decide whether this fits. The lock-up runs about seven years, because IRC Section 704(c)(1)(B) triggers a taxable event for the original contributor if the contributed property is distributed to a different partner inside that window. The fund must also hold at least 20% of its assets in something other than publicly traded securities, often real estate, to avoid being treated as an investment company, and those holdings carry their own fees and risk. Access is the third constraint. Traditional exchange funds from large banks are generally limited to qualified purchasers, which for an individual usually means at least $5 million in investments, and commonly ask for $500,000 to $1 million of contributed stock. Some newer sponsors accept accredited investors with lower minimums, so terms vary widely by sponsor.
For a large, low-basis position you will not need to sell for seven years, the deferral can be worth the lock-up. If you might need the money sooner, it does not fit.
Some investors skip selling altogether and borrow against the position instead. If you are considering that, read how buy, borrow, die works, and what it costs, before committing to it.
What Nino does for a concentrated stock position
A financial advisor can flag the concentration and recommend diversifying. A CPA can calculate the capital gain once the shares are sold. Your employer will tell you when shares vest and when the trading window opens. None of them answers these questions: How much to sell this year, and which lots. How the sale lands against your RSUs, your options, your bonus, your giving, and your estimated tax payments. How much company exposure you will still carry after another year of vesting.
Nino’s Advisor plans give you a human CPA and CFP. You enter your RSU and option grants in Nino’s grant form, Nino connects your brokerage, bank, and retirement accounts and updates their balances daily, and the CPA prepares your return, which is not filed until you approve it. See Nino’s equity compensation work for executives and senior employees. Advisor plans start at $300/mo, billed annually, with federal and state tax filing included.
Ask your current advisor or CPA one question: are they modeling your sell decision against next year’s vesting, or only against this year’s capital gain? If they cannot answer, settle it before your next trading window opens. Book a free consultation to go through your sales, vesting, and tax bill for the next three years.