8 Powerful Strategies to Reduce Taxes on Concentrated Company Stock

If you hold a large position in one company’s stock, the hardest part of diversifying is often the tax bill. This article covers how to reduce taxes on a concentrated stock position, with eight strategies families use and the tradeoff that comes with each. It follows my earlier piece on being overweight in a single stock.

I ignore state taxes until the last section and focus on the federal long term capital gains rate, which for high earners is typically 23.8%.

What selling concentrated stock costs in tax

Take Alex, who works at Meta and has accumulated $10 million of META stock through RSUs. His cost basis is $2 million, so he has $8 million of unrealized gains. If he sells $1 million of shares, about $800,000 is taxable gain, and he owes roughly $190,000 in federal tax.

Selling gradually and using tax loss harvesting

A gradual sale. Most people sell small portions monthly or quarterly and spread the tax over multiple years. The diversified portfolio Alex builds along the way may produce losses that offset gains from future META sales. This is simple, low risk, and extremely common, but Alex still pays tax along the way and stays exposed to META until he fully exits.

Tax loss harvesting with a long/short portfolio. These portfolios are designed to closely replicate an index like the S&P 500 while typically generating regular realized losses. Alex might invest $3 million to $5 million, and the strategy may produce $200,000 to $500,000 of losses a year to offset META gains. It needs meaningful outside capital, often has higher fees, may underperform a simple index fund, and the losses are not guaranteed.

Hedging with an options overlay

Buying put options creates a floor under the stock price. Some strategies also sell covered calls, with the premium helping to offset the cost of the puts. You get downside protection and the ability to hold the stock longer. In exchange, upside may be capped, the strategy requires ongoing monitoring, and option income can create tax complexity.

Diversifying without selling: 351 exchanges and exchange funds

Section 351 exchange to an ETF. Alex contributes appreciated stock in kind to certain ETFs and receives ETF shares without triggering tax. These ETFs have strict minimums, not every stock qualifies, you give up the ability to pick your own investments, and unwinding later may trigger taxes.

Exchange fund. Exchange funds pool concentrated positions from many investors. If Alex contributes $5 million of META, there is no tax today, and after a 7 year holding period he receives a diversified basket of assets. The tradeoffs are the 7 year lockup, limited liquidity, and no control over the holdings. The tax is deferred rather than avoided.

Charitable strategies for appreciated stock

If philanthropy is part of your goals, charitable strategies are among the most tax efficient tools available.

• Donor advised fund (DAF). Alex donates $1 million of META, receives a tax deduction immediately, and the DAF can sell the stock tax free.
• Charitable remainder trust (CRT). The trust sells the contributed stock without paying capital gains tax, Alex receives income for life, and what remains goes to charity.
• Charitable lead trust (CLT). Charity receives income now and Alex’s family receives what remains later, which can reduce gift and estate taxes.
• Private foundation. Maximum control and maximum complexity, appropriate only when there is a long term charitable mission.

The tradeoff across all of them is permanence and administrative cost.

Opportunity zones for capital gains

If Alex sells META and reinvests the gains in an opportunity zone fund, he can defer tax on the original gain and potentially eliminate tax on the future growth of that investment. The projects often involve early stage development, carry higher risk, and require long holding periods.

Selling in a low income year or after moving to a state with no income tax

Capital gains taxes are based on your total income. When income drops, such as during a sabbatical or a year between roles, more of your gains fall into the 15% bracket instead of the top 23.8% bracket.

State taxes can widen the gap. California taxes capital gains as ordinary income, so an $800,000 sale can create more than $100,000 of state tax. Florida has no income tax, so if Alex becomes a Florida resident before selling, he can eliminate that state bill. Moving is not trivial, though. Residency rules are strict, and this works best as part of a multi year plan of gradual selling.

The right approach depends on your goals, timeline, risk tolerance, and how much flexibility you are willing to give up for tax efficiency.

Common questions

How much tax do you pay when you sell concentrated stock?

For high earners, the federal long term capital gains rate is typically 23.8%. In the example, selling $1 million of stock with about $800,000 of gain means roughly $190,000 of federal tax.

Can you diversify a concentrated stock position without paying taxes?

A Section 351 exchange into an ETF or an exchange fund can provide diversification without tax at contribution, though with an exchange fund the tax is deferred rather than avoided.

Does moving to Florida eliminate capital gains tax on stock?

It can eliminate the state tax bill if you become a Florida resident before selling, because Florida has no income tax. Residency rules are strict.

VDB Wealth is a registered investment adviser. Information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance is not indicative of future performance.

Welcome back to the channel. My name is Andy VandenBerg and I run VDB Wealth.

Today we’re diving into a topic that many high earning professionals face, especially in tech: how to reduce taxes when you’re sitting on a large, concentrated stock position.

This is a follow up to my last video on what to do when you’re overweight in a single stock. But today we’re zooming in specifically on the tax side, the strategies real families use, the tradeoffs that come with each one, and why there is no free lunch in any of this planning.

Before we begin, one important note. Throughout this video, I’m ignoring state taxes to keep the examples clear and consistent. State taxes vary widely, California taxes capital gains at ordinary income rates up to 13.3%, New York is around 8 to 10%, and states like Florida and Texas have no income tax at all.

For simplicity, we’ll focus on federal long term capital gains tax, which for high earners is typically 23.8 percent. We’ll bring state taxes back in later, especially in the Sabbatical Year section.

To make everything consistent, let’s introduce the example we’ll use throughout the video.

Meet Alex. He works at Meta and over the past decade has accumulated ten million dollars of META stock through RSUs. His cost basis is two million dollars, meaning he has eight million dollars of unrealized gains.

If Alex sells one million dollars of shares, about eight hundred thousand dollars is taxable gain, and at the top long term capital gains rate, he owes roughly one hundred ninety thousand dollars in federal tax.

Now multiply that across multiple sales or multiple years. The tax bill grows quickly. Which is why strategies matter.

Let’s walk through eight real, practical ways someone like Alex can manage taxes while diversifying out of a concentrated stock position. Each option has real benefits and meaningful tradeoffs.

Outright sale, done gradually and intentionally

The most straightforward approach is simply to sell the stock, but to sell it gradually and with intention.

Most people do not sell everything at once. Instead, they sell small portions monthly or quarterly, spread the tax impact over multiple years, and at the same time build a tax loss harvesting portfolio to offset future gains.

While Alex unwinds META, his diversified taxable portfolio may produce tax losses from rebalancing, volatility, or dedicated tax loss harvesting strategies. Those losses can offset gains from future META sales.

This approach is simple, low risk, and extremely common. But the tradeoff is clear: Alex still pays taxes along the way, and he remains exposed to META until he fully exits the position. There’s no free lunch, the simplicity is balanced by ongoing tax impact and continued stock risk.

Options overlay

Options overlays create structure around a concentrated position, especially downside protection.

A core tool here is buying put options. For someone like Alex, whose entire net worth is tied to one stock, buying puts creates a floor under the stock price. If META dropped substantially, those puts could significantly reduce the downside.

Some strategies pair this with selling covered calls. The premium from selling calls helps offset the cost of buying protective puts.

In practice, Alex buys puts to guard against major declines and may sell calls to help fund those puts. He reduces risk and may generate income while he unwinds the position.

The benefits are clear: downside protection, more stability, and the ability to hold the stock longer.

But the tradeoffs matter: upside may be capped, the strategy requires ongoing monitoring, and option income can create tax complexity. Again, no free lunch, you trade some flexibility and upside for risk reduction.

Section 351 exchange to an ETF

A 351 exchange allows investors to contribute appreciated stock to certain ETFs in kind and receive ETF shares without triggering taxes.

Think of it this way. Alex has a basket full of only one type of fruit, META shares. A 351 exchange allows him to hand over that basket and receive a diversified basket, an ETF, without paying taxes on the swap.

This provides immediate diversification without a taxable event.

The tradeoffs: these ETFs have strict minimums, not every stock qualifies, and you give up the ability to hand pick your investments. Unwinding it later may also trigger taxes.

It’s powerful, but not flexible. Again, no free lunch.

Tax loss harvesting paired with a long/short portfolio

Tax loss harvesting works by intentionally realizing losses in a portfolio. Those losses then offset gains from selling concentrated stock.

Long/short portfolios take things a step further. They’re designed to closely replicate an index, like the S&P 500, but they typically generate regular realized losses through rebalancing and short positions.

For Alex, this might look like investing three to five million dollars into a long/short tax efficient strategy. The fund may produce two to five hundred thousand dollars of losses annually, which can offset META gains as he sells.

This strategy works best for people who have meaningful outside capital. To generate substantial losses, the portfolio needs scale.

The benefits: reduced tax drag, maintained market exposure, and a structured way to unwind a large position.

The tradeoffs: these strategies often have higher fees, may underperform a simple index fund, and losses aren’t guaranteed. No free lunch, you exchange simplicity for efficiency and complexity.

Exchange fund

Exchange funds pool concentrated stock positions from many investors. Everyone contributes their single stock position, and after seven years, each investor receives a diversified basket of assets.

For Alex, contributing five million dollars of META triggers no tax today. After the seven year holding period, he receives diversified assets that he can sell on his own schedule.

The benefits: immediate diversification and no tax on contribution.

But the tradeoffs are significant: a seven year lockup, limited liquidity, and no control over the underlying holdings. Taxes are deferred, not avoided. Again, diversification now, tax later, but with time and liquidity constraints.

Charitable strategies: DAF, CRT, CLT, and private foundations

Charitable strategies are among the most tax efficient tools available, and they can be extremely powerful if philanthropy is part of your goals.

A Donor Advised Fund, or DAF, is the simplest. Alex donates one million dollars of META stock into a DAF, receives a full tax deduction immediately, and the DAF can sell the stock tax free. He can make charitable grants over time.

A Charitable Remainder Trust, or CRT, works like this: Alex contributes appreciated stock into the trust. The CRT sells the stock without paying capital gains tax. The proceeds are reinvested. Alex receives income for life, and whatever remains at the end goes to charity. CRTs can increase cash flow and significantly reduce taxes.

A Charitable Lead Trust, or CLT, flips that structure. Charity receives income now, and Alex’s family receives what remains later. CLTs are especially powerful for estate planning and can reduce gift and estate taxes.

A private foundation offers maximum control but also maximum complexity. Reporting requirements are strict, deduction limits are lower, and administrative costs are real. A foundation is a governance tool, not a tax loophole, and is only appropriate when there is a long term charitable mission.

Across all charitable strategies, the theme is consistent: you receive tax benefits because you are giving away assets. The tradeoff is permanence and administrative costs. Powerful tools, but not free.

Opportunity zones

Opportunity Zones allow investors to roll capital gains into designated real estate or business development projects in exchange for tax benefits.

If Alex sells META and reinvests gains into an Opportunity Zone fund, he can defer taxes on the original gain and potentially eliminate tax on the OZ investment’s future growth.

The tradeoffs are real: OZ projects often involve early stage development, carry higher risk, and require long holding periods. These structures must be followed carefully.

Opportunity Zones can be powerful, but only for investors comfortable with their risk profile.

Sabbatical year, including California to Florida differences

This is one of the simplest strategies conceptually, but also one of the hardest to implement realistically. Capital gains taxes are based on your total income. When your income is high, most of your gains get taxed at the top federal rate. When your income drops, like during a sabbatical, a job transition, or a year between roles, more of your gains fall into the lower 15% bracket instead of the top 23.8% bracket.

That alone can create meaningful savings.

Now let’s look at state taxes, where the gap becomes even more dramatic.

California taxes all capital gains as ordinary income. An $800k sale can create more than $100k of state tax alone, regardless of whether Alex is in a normal year or a sabbatical year. The federal rate changes with income; California’s doesn’t.

Let’s say Alex moves his family to Florida, which has no income tax at all. If Alex becomes a Florida resident before selling:

He can eliminate the $100k state tax bill.

The takeaway is simple: Reducing your income lowers your federal tax rate, and living in a zero tax state can remove the state bill entirely. It’s powerful, but moving states has real lifestyle and residency costs, so it works best as part of a multi year diversification plan, not a one off tactic.

But here’s the realistic tradeoff. Moving states is not trivial. Residency rules are strict, and this strategy rarely solves large concentration issues on its own. It works best when paired with a multi year plan of gradual selling.

Those are eight real strategies families use to manage taxes on concentrated stock positions. Every option has benefits, and every option has tradeoffs. There’s no free lunch here. The right approach depends on your goals, your timeline, your risk tolerance, and how much flexibility you’re willing to give up in exchange for tax efficiency.

If you want help evaluating your own situation, feel free to reach out. This is exactly what I help families with at VDB Wealth.

Thanks for watching, and I’ll see you in the next one.