You open your brokerage app and see it staring back at you. That one stock. The one that makes up 60% of your portfolio. Maybe it’s your employer’s stock from years of RSU vesting. Maybe it’s shares from your startup that finally went public. Or maybe you exercised options early, and they’ve grown way beyond what you imagined.
It’s exciting to watch your net worth climb. But here’s what keeps you up at night: you know, having this much money tied up in one company isn’t smart. You’ve read the articles about diversification. You understand the risk. But every time you think about selling, you freeze. Because selling means taxes. Big taxes.
And when the market dips? You tell yourself you’ll sell next time it rebounds. But when it does rebound, you convince yourself to wait a little longer, thinking, “What if it keeps going up?”
Sound familiar?
As a financial advisor working with tech professionals, I see this scenario constantly. The concentrated stock position is one of the most common challenges facing people in the tech industry. And while there’s no magic solution that eliminates all risk and taxes, there are smart strategies that can help you gradually reduce concentration while minimizing your tax bill.
Let’s talk about how tax-loss harvesting can be your friend, even when most of your portfolio seems to be winning.
The Concentration Risk Problem
First, let’s be clear about what we’re dealing with here.
Concentration risk is exactly what it sounds like. Too much of your financial wellbeing tied to one company’s stock performance. And the risk isn’t just theoretical. We’ve seen it play out again and again. Employees who had most of their wealth in Enron, Lehman Brothers, or, more recently, companies that seemed unstoppable until they weren’t.
Even if your company is solid, having 50%, 60%, or 70% of your net worth in one stock means your financial future depends on factors you can’t control. Industry disruption. Management changes. Regulatory challenges. Market sentiment shifts.
Here’s what makes it especially tricky for tech professionals: you often have both your income and your wealth tied to the same company. If something goes wrong, you could face job loss and portfolio devastation simultaneously. That’s not diversification. That’s a bet you probably don’t want to be making.
But there’s also an emotional factor we need to acknowledge. This stock represents your hard work. Your belief in your company. Maybe you’ve seen it grow from $10 to $150 per share. Selling feels like giving up on something you’ve built. Or worse, it feels like you’re going to watch it continue climbing without you.
I get it. These feelings are completely normal. But good financial planning for tech professionals means separating emotional attachment from smart financial strategy.
Tax-Loss Harvesting 101
So, how do tax-loss harvesting and concentration risk connect? Let’s start with the basics.
Tax-loss harvesting is the strategy of selling investments that have lost value to offset capital gains from investments that have increased in value. When you sell a stock for less than you paid for it, you realize a capital loss. That loss can offset capital gains dollar-for-dollar.
Here’s a simple example: You sell some of your concentrated position and realize a $20,000 capital gain. But you also have some other tech stocks in your portfolio that are down. You sell those at a $20,000 loss. The gain and loss offset each other, meaning you owe no capital gains tax on that $20,000.
And here’s the kicker: you can use up to $3,000 in capital losses per year to offset ordinary income. If you have losses beyond what you can use this year, they carry forward indefinitely to future tax years.
The tax rates matter too. Short-term capital gains (on assets held less than a year) are taxed as ordinary income, which could be as high as 37% at the federal level. Long-term capital gains (on assets held more than a year) are taxed at 0%, 15%, or 20%, depending on your income. For high earners, there’s also the 3.8% Net Investment Income Tax.
That means if you’re in the top bracket, the difference between paying taxes on short-term vs. long-term gains could be over 20 percentage points. Smart tax planning for tech professionals takes all of this into account.
Strategic Timing for Reducing Concentration
Now let’s talk about how to use tax-loss harvesting specifically to tackle your concentration problem.
Use Market Volatility to Your Advantage
Markets go up and down. When we hit a correction or bear market, your diversified holdings might show losses while your concentrated position might be down too, or at least not up as much as it was.
This is actually your opportunity. You can:
- Harvest losses from your diversified positions
- Use those losses to offset gains from selling some of your concentrated stock
- Buy back into diversified positions that align with your values (more on the wash sale rule in a minute)
Let’s look at a real scenario (details changed for privacy):
Sarah, a software engineer in the Bay Area, had $800,000 in company stock and another $200,000 spread across various tech stocks and index funds. During a market pullback, her diversified holdings declined by about 15%, resulting in roughly $30,000 in unrealized losses. Meanwhile, her company stock was still up significantly from her original cost basis.
We harvested those $30,000 in losses by selling her losing positions. Then we sold $30,000 worth of her company stock (which would have created a taxable gain). The losses offset the gains. We used the proceeds to buy into a diversified portfolio of value-aligned investments. No tax bill, less concentration, better diversification.
Annual Tax Planning Calendar
Smart tech professionals don’t wait until December to think about taxes. Here’s a rough calendar for strategic concentration reduction:
Q1 (January to March): Review last year’s tax situation and establish goals for the current year. If you have losses carried forward from previous years, you have more flexibility to realize gains.
Q2 (April to June): Mid-year check-in. How is your concentrated position performing relative to the market? Are there loss-harvesting opportunities in other holdings?
Q3 (July to September): Start getting tactical if you plan to reduce concentration this year. Don’t wait until December when you have limited flexibility.
Q4 (October to December): Final review and any necessary adjustments. But remember, you want to make strategic decisions throughout the year, not rushed ones in late December.
Real Example with Numbers
Let’s say you have $500,000 in company stock with a cost basis of $100,000. If you sold it all at once, you’d face taxes on a $400,000 gain. At 20% long-term capital gains plus 3.8% NIIT, that’s roughly $95,000 in taxes. Ouch.
Instead, you commit to a multi-year diversification strategy. Each year, you look for loss-harvesting opportunities that let you sell $50,000 to $75,000 of your concentrated position without triggering a large tax bill. Over five to seven years, you gradually diversify without the massive one-time tax hit.
This requires patience. But it’s often the most tax-efficient path to a properly diversified portfolio.
Advanced Strategies (and Important Rules)
Once you understand the basics, there are some more sophisticated approaches worth knowing about. But they come with important rules.
Specific Share Identification
If you’ve acquired your company stock at different times and prices (which is common with RSU vesting), you don’t have to sell your shares on a first-in, first-out basis. You can specify exactly which shares you’re selling.
This matters because you might have some shares with a very low cost basis and others purchased more recently at higher prices. By identifying the specific shares with the highest cost basis, you minimize your taxable gain.
Your brokerage needs to support this, and you need to specify before you sell. But for someone with a large concentrated position built up over years, this can save tens of thousands in taxes.
The Harvest and Replace Strategy
Here’s a strategy I use with clients regularly: harvest losses in your diversified portfolio, then immediately replace those investments with similar (but not identical) assets.
For example, you might sell a technology sector ETF at a loss and immediately buy a different technology sector ETF that tracks a slightly different index. You maintain your market exposure while capturing the tax loss.
The keyword is “similar but not identical,” which brings us to…
The Wash Sale Rule (Don’t Trip on This)
This is critical. The IRS has a wash sale rule that says if you sell a security at a loss and then buy the same or a “substantially identical” security within 30 days before or after the sale, you can’t claim the loss.
The 30-day window goes both ways. If you buy shares on January 1 and sell them at a loss on January 15, that’s a wash sale because you bought within 30 days before the sale.
Here’s what counts as substantially identical (it’s more strict than you might think):
- The exact same stock (obviously)
- Options on that stock
- Contracts to buy that stock
What’s generally okay:
- Selling one S&P 500 ETF and buying a different S&P 500 ETF from a different provider
- Selling a tech sector fund and buying a different tech sector fund
But be careful. The rules can be complicated, and you don’t want to accidentally create a wash sale that disallows your loss. This is one area where working with a financial planner who specializes in tech compensation really pays off.
Opportunity Zones (for Large, Concentrated Gains)
If you’re sitting on a massive concentrated position and face a huge tax bill no matter what, Qualified Opportunity Zones might be worth exploring. You can defer capital gains by investing them in designated opportunity zone funds.
This is complex and not right for everyone. But for someone facing a multi-hundred-thousand-dollar tax bill on company stock, it’s worth a conversation with a professional.
When Everything Is Up: Alternative Strategies
Okay, but what if you don’t have losses to harvest? What if your entire portfolio is in the green and you still need to reduce concentration?
You have options. They just require a different approach.
Direct Indexing
Direct indexing means instead of buying an index fund, you buy all (or many) of the individual stocks that make up that index. Why does this matter?
Because even in a generally rising market, individual stocks within an index fluctuate. Some go up while others go down. With direct indexing, you can harvest losses from the individual stocks that are down while maintaining your overall index exposure.
This strategy works best with larger portfolios (generally $100,000+) and requires more active management. But for tech professionals with concentrated positions looking to diversify tax-efficiently, it can be powerful.
Charitable Giving
If you’re charitably inclined, donating appreciated stock is one of the most tax-efficient ways to give. You get a deduction for the full fair market value and never pay capital gains tax on the appreciation.
Let’s say you planned to donate $25,000 to charity this year. Instead of donating cash, you donate $25,000 of your highly appreciated company stock. You get the same deduction, avoid capital gains tax on that stock, and can use the cash you would have donated to diversify into other investments.
For larger charitable goals, a donor-advised fund lets you get the full tax deduction now while distributing to charities over time. (We’ve written more about this in our charitable giving strategies post.)
Gradual Diversification Over Time
Sometimes the answer is just to accept that you’ll pay some taxes and to gradually diversify anyway. Yes, you’ll owe capital gains tax. But that’s not necessarily bad.
Think about it this way: if you never sell because you don’t want to pay taxes, you’re letting the tax tail wag the investment dog. You’re keeping concentration risk that could hurt you far more than the taxes would have.
I worked with a client who kept putting off diversification because he didn’t want to “lose” 20% to taxes. Then his company’s stock dropped 40% in six months during an industry downturn. The taxes he was trying to avoid would have been far less painful than the loss he ultimately incurred.
Sometimes, paying taxes on gains is actually a good problem to have.
Roth Conversions
This one’s a bit different, but worth mentioning. If you have traditional IRA or 401(k) funds, you might convert some to a Roth IRA in years when you have capital losses to offset the conversion income.
This doesn’t directly address your concentrated stock position, but it’s part of comprehensive tax planning for tech professionals who are looking at their entire financial picture.
Creating Your Personalized Strategy
Here’s what I want you to understand: there’s no one-size-fits-all solution to concentrated stock positions. Your right strategy depends on:
- How concentrated you are (50%? 70%? 90%?)
- Your cost basis (are you up 100%? 500%? 1000%?)
- Your income and tax bracket
- Your timeline and goals
- Your risk tolerance
- Whether you’re still receiving equity compensation
A 35-year-old software engineer who is still receiving annual RSU grants needs a different strategy than a 50-year-old who exercised ISOs a decade ago and is now holding appreciated stock.
That’s why cookie-cutter advice doesn’t work here. You need a strategy built around your specific situation.
Your Next Step: Get a Concentrated Position Strategy Review
If you’re sitting on a concentrated tech stock position, you’re not alone. It’s one of the most common challenges facing people in the tech industry. The good news? With the right strategy, you can gradually reduce your risk while minimizing taxes.
At Woven Capital, we work with tech professionals throughout California who are navigating exactly this situation. We help you develop a multi-year strategy for diversifying your concentrated position in a tax-efficient way that aligns with your values and goals.
Whether you’re dealing with RSUs from an established tech company, appreciated stock from an early-stage startup, or ISOs you exercised years ago, we can help you create a plan that balances:
- Risk reduction through diversification
- Tax efficiency through strategic loss harvesting
- Values alignment through thoughtful investment selection
- Long-term wealth building toward your actual goals
We’re a fee-only, fiduciary financial planning firm, which means our only job is helping you make better decisions. We don’t sell products. We don’t earn commissions. We just provide objective guidance based on what’s best for you.
Schedule a focused position strategy consultation to discuss your specific situation. We’ll review your current position, model different scenarios, and help you develop a realistic, tax-efficient plan to reduce concentration while building the diversified portfolio you need.
Because here’s the thing: your company stock might have built your wealth. But it shouldn’t be your entire financial future.