How a Tech Engineer Cut His
$642K Stock Gain's Tax Bill Nearly in Half
The Situation
Kevin is a senior software engineer in the LA tech corridor. Over five years at his current employer, his RSUs had accumulated into a concentrated position: 3,200 shares of company stock worth $680,000 at current market value, with a cost basis of just $38,000. He was planning to sell most of it to diversify into a down payment and a broader portfolio.
Without any planning, his situation was stark. Selling the entire position in one calendar year would produce $642,000 in long-term capital gains. At his income level — $280,000 in W-2 income filing married jointly — the gains would be taxed at the 20% federal rate plus 3.8% Net Investment Income Tax (NIIT), plus California's 9.3% state rate. All told: roughly $152,000 in combined taxes before he saw a dollar.
The 3-Part Strategy
Instead of liquidating in one year, Kevin spread the sale across three tax years. In year one he sold $200,000 of stock; in year two, $220,000; in year three, the remaining $222,000. Each tranche kept his MAGI below the threshold that would push all gains into the 23.8% combined federal rate.
By structuring the sales thoughtfully, the first $130,000 of capital gains each year — the amount that fit below the 20% threshold given his W-2 income — was taxed at 15% instead of 20%. That difference alone saved over $19,500 across the three years.
This strategy requires stock price discipline. If the shares appreciate significantly between year one and year three, delaying the sale may cost more than the tax savings. Modeling is required.
Kevin's brokerage account held a diversified ETF portfolio he'd built over the years. A review of unrealized positions revealed $74,000 in losses sitting in an international equity fund and an emerging markets fund — positions that had underperformed but which Kevin had never sold because "they'll recover eventually."
We sold those positions in year one, harvesting $74,000 in capital losses. Those losses directly offset $74,000 of the gains from the RSU sale — reducing his year-one taxable capital gain from $200,000 to $126,000 and saving approximately $17,600 in federal and state taxes.
He immediately repurchased similar (but not substantially identical) funds to maintain his portfolio allocation, avoiding the wash-sale rule while staying invested.
Kevin and his wife had been donating roughly $12,000 to various charities each year — giving cash from their checking account. We converted this charitable giving into a strategic tax move using a Donor-Advised Fund (DAF).
Instead of donating cash, Kevin contributed $80,000 worth of company stock (with near-zero basis) directly into the DAF. The result: he received an $80,000 charitable deduction based on the full fair market value of the shares — never paying capital gains tax on that stock. The shares were sold inside the DAF tax-free, and the proceeds are now available to distribute to any 501(c)(3) charity over time.
The DAF contribution reduced his itemized deductions significantly, lowering his ordinary income and providing an additional $29,600 in combined federal and state tax savings. He effectively front-loaded several years of charitable giving into a single deductible event.
The Combined Impact
Here's a simplified comparison of what Kevin faced without planning versus the outcome with the three-part strategy applied across year one alone (the year with the largest sale):
| Item | Unplanned Sale | With Strategy |
|---|---|---|
| Total Capital Gain (all 3 years) | $642,000 | $642,000 |
| Removed via DAF (no cap gains tax) | — | −$80,000 |
| Offset by Harvested Losses | — | −$74,000 |
| Net Taxable Capital Gain | $642,000 | $488,000 |
| Effective Blended Tax Rate (fed + state) | ~23.7% | ~17.6% |
| Total Tax Savings | — | ~$66,000 |
The $66,000 in savings doesn't include the compounding benefit of having that capital available three years sooner — or the charitable impact of the DAF, which continues to distribute to causes Kevin cares about on his timeline.
Key Takeaways for High Earners with Equity Compensation
- RSUs vest as ordinary income — but once you hold them, any future appreciation becomes a capital gains story. The timing of when you sell matters significantly.
- Never donate cash when you can donate appreciated securities. The tax math almost always favors transferring shares directly to a DAF over selling and donating the proceeds.
- Tax-loss harvesting is most powerful in the same year as a large gain. Losses in adjacent years carry forward but don't eliminate the current-year tax hit.
- The 15% vs. 20% long-term capital gains threshold is real and worth modeling. For married filers in 2024, gains beyond ~$583,750 in combined income shift to the higher rate — knowing your exact number allows precise planning.
- Concentrated positions in a single employer's stock carry both tax and concentration risk. The goal of a liquidation plan is to diversify while minimizing the tax cost — not to minimize tax at the expense of staying dangerously concentrated.
Model Your Capital Gains Strategy
Before You Sell
We'll map out the exact tax cost of your current plan and show you what a structured multi-year approach would look like — no obligation, just clear numbers.
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