Decide why to sell and how much to sell.
What is your goal?
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.
The SEC 10b5-1 plan is a regulatory guideline established by the Securities And Exchange Commission (SEC) to allow insiders of publicly traded corporations to set up a trading plan for selling stocks they own. The plan is named after Rule 10b5-1, which was established to address the issue of insider trading. The rule provides a defense against charges of insider trading if the insider can demonstrate that the trades conducted were planned in advance. This is a critical tool for corporate officers, directors, and major shareholders to manage their stock holdings and liquidity while complying with insider trading laws.
Understanding the 10b5-1 Plan A 10b5-1 plan is essentially a written agreement between the insider and their broker, detailing when and how the insider’s securities will be traded. These plans are predetermined, meaning that the insider sets the plan in motion at a time when they are not in possession of material, non-public information. Once established, the insider relinquishes control over trading decisions to an independent third party, typically a broker or an investment advisor, who then executes trades according to the plan’s instructions.
Key benefits include:
The primary benefit of a 10b5-1 plan is its ability to provide legal protection against allegations of insider trading. Since trades are preplanned and executed automatically, it removes the suspicion that trades were made on the basis of material, non-public information.
Insiders can design their trading plans to suit their financial goals while complying with securities laws. Plans can specify quantities, prices, and dates for transactions, or establish formulas or algorithms to direct trading.
By disclosing a 10b5-1 plan, companies and insiders can maintain market confidence, as it demonstrates a commitment to transparency and fairness in dealings.
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.
After establishing a plan, you must not exert any influence over it. The plan should operate independently.
Implement a cooling-off period between the plan’s establishment and the commencement of trading under the plan. This measure can further safeguard against claims of insider trading.
Although you relinquish control over the trading decisions, it’s important to regularly review your plan’s performance and adjust it if necessary, in compliance with legal advice and regulations.
At its core, an Exchange-traded Product provides a structured method for employees to sell shares at predetermined intervals or under specific conditions. This automation aligns with a disciplined approach to investment, encouraging the diversification of assets and reducing the emotional decision-making often associated with stock trading. ETPs are designed not just for convenience but also to comply with insider trading laws and regulations, providing a legal framework for employees to manage their stock holdings.
Benefits of Automating Stock Selling
ETPs are structured to adhere to SEC Rule 10b5-1, providing a defense against insider trading accusations. By setting your trading plan when you do not possess material non-public information, your subsequent trades under the plan will have a safe harbor against insider trading claims.
Automating your selling strategy helps in mitigating the risk of emotional trading decisions. It allows for a more disciplined approach by sticking to predetermined selling points, which can be crucial in avoiding the common pitfall of trying to time the market.
ETPs can be strategically used to spread out stock sales over time, potentially reducing the tax impact in any single year. Usually stocks are sold soon after they are vested, minimizing your capital gains.
Regularly selling a portion of your company stock to reinvest in other assets reduces your dependency on the financial performance of a single company. This diversification is a foundational principle of risk management in personal finance.
Check if you can sell — if you are enrolled in the ETP or are outside the trading window (if you or your spouse can be classified as insider), you cannot sell.
Start with the specifics of your employer’s ETP, 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.
Before committing to an ETP, it’s prudent to discuss your overall financial situation with a wealth manager or financial advisor. They can provide personalized advice on how an ETP fits into your broader investment strategy and financial goals.
While ETPs are inherently set-and-forget, it’s essential to periodically review your plan in the context of your changing financial situation and market conditions. Adjustments may be necessary to ensure your selling strategy remains aligned with your goals.
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. Also, think about making several years’ worth of donations in one go if it fits your financial strategy. Just remember, if your donations are more than 20% of your Adjusted Gross Income (AGI) on your tax return, check out the guidelines in IRS Publication 526 to make sure you’re maximizing your benefits.
You can donate to a Donor Advised Fund (DAF) now and designate the charities later, even years later.
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: a tax-advantaged IRA-style account for any US-citizen child under 18, holding qualifying index-tracking investments. Contributions are capped at $5,000 per year (indexed after 2027), with employers permitted to add up to $2,500 annually on behalf of an employee or an employee’s dependent. US-citizen children born during the program’s initial window receive a one-time $1,000 federal seed deposit. Growth is tax-deferred; withdrawals follow traditional-IRA rules. 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 compounding outside that regime entirely. Over a 60-year horizon, the deferral is the entire point; fund it on January 2 every year.
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.