Concentrated position planning

Concentrated stock tax strategies: options before, during, and after a Rule 144 sale

Holding a large position in a single company creates two distinct problems: market-risk concentration and tax concentration. Once shares are eligible for sale under Rule 144, most founders and executives face a capital gains tax that can reach 23.8% federally — and higher when state taxes apply. The question is not just whether to sell, but in what form, on what timeline, and through which vehicle.

This guide covers six strategies commonly used by affiliates and founders. Each has its own complexity, eligibility requirements, and tradeoffs. Understanding the menu early — before the sale process begins — is how advisors maximize what stays in your hands after the dust settles.

2026 federal tax rates on stock gains

Long-term capital gains (shares held more than twelve months) are taxed at preferential federal rates. For 2026:¹

In addition, the 3.8% Net Investment Income Tax (NIIT) applies to capital gains when modified AGI exceeds $200,000 (single) or $250,000 (MFJ).² These NIIT thresholds are not inflation-adjusted, which means nearly every executive or founder-level seller pays them. The combined top federal rate is 23.8%.

State taxes vary significantly. California taxes long-term gains as ordinary income at rates up to 13.3%. Texas, Florida, Washington, and Nevada impose no income tax on capital gains. For large positions, domicile can matter more than the trading plan.

Strategy 1: Staged sale over multiple years

When it helps: Staged sales reduce tax when income varies across years. If you expect lower income in future years (retirement, reduced bonus, sabbatical), deferring gain to those years keeps more of it in the 15% bracket. For a single filer, keeping annual taxable income below $545,500 saves 5 percentage points (20% vs. 15%) on any gain in that range.

Example: An executive planning to retire in 24 months has $2M in taxable income this year and expects $180K in retirement. Selling $3M in gains now: mostly taxed at 20% + 3.8% = $714,000 in federal tax. Selling $1M per year over three years, with $1M in year two and $1M in year three at $180K base income: approximately $150,000 in year-two and year-three federal tax each, versus $238,000 per year if sold at peak-income rates. The savings depend on the specific income profile, but the principle is straightforward.

Affiliate constraint: Rule 144's rolling three-month volume limit caps how fast an affiliate can sell. Use the volume limit calculator to see how long a full exit realistically takes given shares outstanding and average weekly trading volume. Then overlay the tax timeline.

Strategy 2: Donor-advised fund (DAF)

What it eliminates: The capital gains tax on the contributed shares is permanently avoided. If you would have given to charity anyway, a DAF contribution is strictly better than selling first and donating cash.

Limits: The deduction cap (30% of AGI for appreciated property) limits how much can be offset in a single year. A large position may require multi-year contributions. The contributed shares must be publicly traded and the DAF sponsor must accept them — most major custodians (Schwab, Fidelity, Vanguard, and specialty funds) accept publicly traded securities.

What it doesn't do: A DAF is irrevocable. You don't recover the cash; it is permanently dedicated to charitable purposes. It is most useful when you have genuine charitable intent and want to be strategic about which assets fund that intent.

Strategy 3: Charitable remainder trust (CRT)

What it achieves: Capital gains are not eliminated — they are spread over the trust's payment period as distributions are recognized on the beneficiary's return. The total tax paid over time is often substantially less than paying all in the sale year, and the charitable deduction offsets some of the income in the funding year.

Section 7520 rates: The charitable deduction is calculated using 120% of the mid-term AFR published monthly by the IRS.³ Higher rates produce larger deductions; the rate in effect when the CRT is funded applies throughout. Advisors who specialize in this strategy monitor these rates as part of timing decisions.

Who it fits: CRTs work best for holders who (a) have charitable intent for a portion of the position, (b) want an income stream rather than a lump sum, and (c) are holding stock with a very low basis relative to value. Complex to establish and administer; professional legal and tax counsel is required.

Strategy 4: Exchange fund (partnership contribution)

After seven years: The partner holds an interest in a diversified fund. The embedded gain does not disappear — the partner's basis remains the original stock basis — but the market risk is diversified. Future sales of the fund interest generate capital gains; gains at death receive a stepped-up basis and the embedded gain is eliminated.

Practical limitations: Exchange funds are available only through a small number of managers and typically require minimum contributions of $1M to $5M in a single stock. The fund manager chooses the other contributors and the illiquid-asset allocation. Liquidity is effectively zero for the first seven years. This strategy is most appropriate for long-horizon holders with very large positions and genuine uncertainty about eventual timing.

Strategy 5: Hedging (for non-affiliates and with affiliate-specific constraints)

Constructive sale risk: Under IRC § 1259, certain hedging transactions are treated as constructive sales, triggering immediate gain recognition. A perfect hedge (zero-cost collar where the put and call prices are identical) is a constructive sale. Near-collars — where there is a meaningful spread between put strike and call strike — are generally not, though the IRS can challenge them in narrow bands. Short against the box is explicitly a constructive sale under § 1259.

Affiliate constraints: For executive officers, directors, and 10%+ shareholders, short sales of company stock are prohibited under Exchange Act § 16(c). Certain hedging transactions using puts, calls, or equity swaps against company securities may also require advance disclosure or pre-clearance under the issuer's insider trading policy. Check the company's securities trading policy and confirm with counsel before entering any hedging transaction.

When it applies: Hedging is most useful as a bridge — protecting against downside during a period when the position cannot be sold (lockup, blackout, pending Form 144 or 10b5-1 setup). It is not a permanent tax deferral mechanism on its own.

Strategy 6: Estate planning with a $15M exemption

Implication for concentrated positions: For a holder whose estate value (including the stock) falls below $15M, holding the stock until death produces zero federal capital gains tax and zero federal estate tax. This is a powerful result that changes the calculus on how aggressively to sell during life.

Above $15M: For larger estates, strategies such as Grantor Retained Annuity Trusts (GRATs), Intentionally Defective Grantor Trusts (IDGTs), or spousal lifetime access trusts (SLATs) can shift future appreciation out of the taxable estate while retaining some income or access. These require specialized estate counsel and are beyond the scope of a Rule 144 sale plan, but an advisor who understands concentrated stock should coordinate with the estate plan before executing large sales.

ISO holders: Founders who exercised ISOs before or shortly after IPO often have an AMT basis that differs from their regular tax basis. The AMT credit generated at ISO exercise becomes usable when the stock is sold, creating a complex multi-year tax picture. A financial plan should model both the regular tax liability and the AMT credit recovery across years.

Which strategy fits which situation

Most holders with material concentrated positions benefit from a combination — for example, a three-year staged sale cadence that funds a DAF in each year while a collar provides downside protection during blackout periods. These combinations require a financial advisor who can model the full picture, not just one lever at a time.

For the Rule 144 mechanics that govern when and how much you can sell, see the affiliate sale plan guide and the volume limit calculator.