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Tax Planning for Selling Shares

Decide why to sell and how much to sell.

What is your goal?

Sell RSU shares when acquiring them

Opt for selling shares you receive as part of your compensation right when you get them. This approach aligns with the common strategy of selling the shares that incur the smallest tax burden first, assuming you don’t own shares at a loss. By doing this, you sidestep capital gains taxes since the shares haven’t appreciated in value yet. This is a savvy move compared to potentially paying taxes amounting to 20–33% of any increase in value.

Register for a 10b5-1 Plan to Automate Selling

A Rule 10b5-1 plan — your employer may market it as an “automatic sale plan” or “employee trading plan” — is a written agreement between you and your broker, adopted while you hold no material non-public information, that sells a set number of shares at predetermined intervals, dates, or price triggers ( Rule 10b5-1). Once the plan is in motion you relinquish control over trading decisions to the broker, who executes according to the plan’s instructions. The automation is the lesser benefit. The real one is that it decouples the decision to sell from the moment of sale, which is what both the insider-trading rules and your own emotions punish you for conflating.

Key benefits:

Legal Protection

Trades preplanned and executed automatically provide an affirmative defense against allegations of insider trading, because the decision was made when you were not in possession of material non-public information. This is the standard tool for corporate officers, directors, and major shareholders to manage liquidity while complying with insider-trading laws.

Disciplined Selling

Predetermined selling points — quantities, prices, dates, or a formula — replace reacting to price, mitigating the risk of emotional trading decisions.

Tax Spreading

A plan can spread sales across years, reducing the tax impact in any single year; selling soon after vesting keeps the capital gain on each lot minimal.

Diversification

Regularly selling company stock to reinvest elsewhere reduces your dependency on the financial performance of a single company.

Check whether you can sell at all before you plan around it. If you or your spouse can be classified as an insider, discretionary sales are confined to the open trading window, and a blackout can arrive without warning ahead of an unannounced event. That constraint is exactly what a 10b5-1 plan solves: trades executed under a properly adopted plan continue through blackouts, because the decision was made when you were clean.

Establishing a 10b5-1 Plan Your plan outlines the number of shares to be traded, price limits, and precise timing or formula for transactions. Before setting up a plan, it’s advisable to consult with legal professionals who are well-versed in securities law to ensure compliance with all regulatory requirements. Your employer may provide resources and guidance to set the plan.

Compliance: These Are Conditions, Not Best Practices. The SEC amended Rule 10b5-1 in December 2022, effective February 2023, and converted what had been prudent hygiene into elements of the affirmative defense. Miss one and the plan does not protect you at all.

Cooling-off period –- mandatory

For directors and Section 16 officers, no trading may begin until the later of 90 days after adoption and two business days after the issuer discloses financial results for the fiscal quarter in which the plan was adopted, capped at 120 days. For everyone else, 30 days. Modifying the price, amount, or timing formula restarts the clock as if the plan were newly adopted.

Director and officer certification

At adoption, a director or officer must certify in the plan that they are not aware of material nonpublic information and are adopting the plan in good faith.

No overlapping plans

Persons other than the issuer may not maintain multiple overlapping plans for open-market trades in the same class of securities, subject to narrow exceptions for sequential plans and sell-to-cover arrangements.

One single-trade plan per twelve months

The defense is available for only one single-transaction plan in any rolling twelve-month period.

Good faith throughout

The rule now requires that you act in good faith with respect to the plan for its whole life, not merely at the moment of adoption — which is how the SEC reaches cancellations and influence exerted after the fact. You still must not exert influence over how trades execute.

Your trades become public

Item 408 of Regulation S-K requires the issuer to disclose quarterly whether any director or officer adopted, modified, or terminated a plan, along with its material terms. Assume the adoption date and the schedule will be read by anyone who cares.

Sell-to-cover arrangements limited to withholding taxes on vesting equity are carved out of the overlapping-plan and single-trade limits, which is why they can run alongside a genuine 10b5-1 plan.

Start with the specifics of your employer’s plan, including any limitations or prerequisites for participation. Employers may have different rules regarding who is eligible, how often you can sell, and what percentage of your stock you can sell at a time.

Review the plan annually even though it runs itself. The parameters that made sense when you set it — the sale percentage, the price floors, the concentration you were willing to carry — drift as the position grows and as the rest of your balance sheet changes around it. Set-and-forget describes the execution mechanism, never the review cycle.

Donate directly to charity using stocks that have gone up in value, especially if you’ve held them for over a year. This smart move lets you skip paying capital gains taxes, which isn’t the case if you sell those shares for cash first. Focus on donating stocks with the smallest initial investment since these have grown the most in value, and hold them more than a year first — appreciated property held a year or less is deductible only at your basis, which throws away the entire point. Also, think about making several years’ worth of donations in one go (section “Bunch Your Giving”).

Know which ceiling applies before you size the gift, because they differ by three-fold: cash to a public charity is deductible up to 60% of Adjusted Gross Income (AGI), appreciated long-term capital-gain property to a public charity or DAF up to 30%, and appreciated property to a private foundation up to 20%. Excess carries forward five years. Beginning in 2026 a 0.5%-of-AGI floor applies before any of it counts, and taxpayers in the 37% bracket see the benefit capped at 35 cents on the dollar — section “Charity And Taxes” has the mechanics. IRS Publication 526 is the operative guidance.

You can donate to a Donor Advised Fund (DAF) now and designate the charities later, even years later.

If the proceeds are for a kid, let the kid sell some.

The first $2,700 of a child’s unearned income is taxed at their income tax rates, so assuming the child has no other income, they can realize long-term capital gains at 0%, and short-term gains at 10%. If their unearned income exceeds $2,700, the excess is subject to kiddie tax, which means that federal income tax is calculated using the parent’s rates instead of the child’s. (Earned income is taxed at the child’s own rates without limitation, and a child must file a return once earned income exceeds $16,100.) Some states also have similar rules. However, the 3.8% Net Investment Income Tax is not figured using the parent’s income. If the parent is subject to NIIT but the child isn’t, having the child sell the shares can still avoid this 3.8% tax. If using the strategies here, the child should generally file an income tax return in their own name. If gifting a large amount of shares, a gift tax return may also be needed even though the lifetime exemption is large and often no gift tax is owed. Of course, if your gift recipient is not subject to kiddie tax, then they can make full use of their lower income tax rates. So if your 19-year-old isn’t going to college, or your 24-year-old is still in grad school, you get all the benefits of gifting without the drawbacks of kiddie tax.

Trump Accounts (2026 onward). OBBBA created a parallel vehicle that sidesteps the kiddie-tax math entirely: where the share-gifting strategy above optimizes a taxable account in the child’s name against the $2,700 kiddie threshold, a Trump Account moves $5,000 a year of index-fund compounding outside that regime altogether, tax-deferred under traditional-IRA rules. section “Trump Child Savings Accounts” covers the mechanics, the $1,000 federal seed, and the funding traps; over a 60-year horizon the deferral is the entire point, so fund it on January 2 every year.

Sell the shares with the least taxes due.

You’ll likely want to pay as little in taxes as possible. Short-term capital gains tax applies to shares held for a year or less, and these rates are different from long-term capital gains tax, which applies to shares held for more than a year. To minimize your taxes, compare the due taxes for shares with the highest basis in both categories.

For shares held less than a year, the tax rate is the same as your income tax rate + 3.8% net investment income tax(for singles with income ≥$200K or married ≥$250K).

For shares held more than a year, the tax rate is 20% (15% for singles with income ≤$545,500 or married ≤$613,700) + 3.8% net investment income tax (for singles with income ≥$200K or married ≥$250K). State taxes are additional and vary by state. E.g., California taxes capital gains at regular income tax rates.

The total tax due is the product of

If your short-term gain is small, e.g., you recently acquired them, the total taxes due from selling these may be smaller than selling shares held more than a year even though the federal income tax rate for short-term capital gains is about 10% higher than for long-term capital gains. If you have shares with a capital loss, selling those shares minimizes one’s taxes, but consider having to handle wash sales. Read more about capital gains.

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