Concentrated Stock position

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Topic Author
turing17
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Concentrated Stock position

Post by turing17 »

Hello,
I have about 1M USD in the AAPL stock sitting on a long term gain of about 975K. So, if I were to sell, my tax bill will be 35.8%; 20% fed, 3.8 NIIT, 12.3% CA).

I am looking of a tax efficient way of diversifying this. I have read briefly about DAFs, CRUTs / NimCRUTS and Exchange Funds but would like to hear from the forum if there are other ways or what the implications of any of these are.

Also, how about doing covered calls 2-3 years out for an OTM or ATM call strike?
Last edited by turing17 on Wed Apr 24, 2024 8:19 pm, edited 1 time in total.
ny_rn
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Re: Concentrated Stock position

Post by ny_rn »

Congrats on the ~ 39x.

Do you need the money? Did you turn off dividends?
Topic Author
turing17
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Re: Concentrated Stock position

Post by turing17 »

ny_rn wrote: Wed Apr 24, 2024 7:49 pm Congrats on the ~ 39x.

Do you need the money? Did you turn off dividends?
Yes, turned off dividends. I dont need that money for the foreseeable future.
Last edited by turing17 on Wed Apr 24, 2024 8:19 pm, edited 1 time in total.
Thesaints
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Re: Concentrated Stock position

Post by Thesaints »

How does one turn dividends off ?
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Rocinante Rider
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Re: Concentrated Stock position

Post by Rocinante Rider »

Thesaints wrote: Wed Apr 24, 2024 8:11 pm How does one turn dividends off ?
You turn off "reinvest" for that holding. The dividends keep coming, but they go into the settlement fund instead of toward purchase of additional shares.
Thesaints
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Re: Concentrated Stock position

Post by Thesaints »

Rocinante Rider wrote: Wed Apr 24, 2024 8:17 pm
Thesaints wrote: Wed Apr 24, 2024 8:11 pm How does one turn dividends off ?
You turn off "reinvest" for that holding. The dividends keep coming, but they go into the settlement fund instead of toward purchase of additional shares.
Unless one activates DRIP, AAPL's (or any other stock's) dividends are not automatically reinvested.
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Rocinante Rider
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Re: Concentrated Stock position

Post by Rocinante Rider »

Thesaints wrote: Wed Apr 24, 2024 8:38 pm
Rocinante Rider wrote: Wed Apr 24, 2024 8:17 pm
Thesaints wrote: Wed Apr 24, 2024 8:11 pm How does one turn dividends off ?
You turn off "reinvest" for that holding. The dividends keep coming, but they go into the settlement fund instead of toward purchase of additional shares.
Unless one activates DRIP, AAPL's (or any other stock's) dividends are not automatically reinvested.
I don't think Apple has DRIP, but brokerages still allow reinvestment. Not really sure as I only buy index funds or their ETFs.
bsteiner
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Re: Concentrated Stock position

Post by bsteiner »

You've pretty much covered the choices. You can do one or more of:

1. Hold it until death for the basis step-up, while retaining the risk of the concentrated position.

2. Sell it and pay the tax.

3. Move to a state with a lower state income tax, or with no state income tax.

4. Exchange funds. But they have substantial fees, you may not be happy with the other securities in the fund, and you may not get fair pricing on the 20% illiquid portion of the fund.

5. A charitable remainder trust. You would receive unitrust payments having an actuarial value of 90% of the initial value of the trust. The charity's remainder interest would have an actuarial value of 10% of the initial value of the trust. You would be paying 10% in exchange for being able to defer the gain over a long period of time.

6. Put and call options.
Thesaints
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Re: Concentrated Stock position

Post by Thesaints »

7. Find an inversely correlated security and buy it.
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whodidntante
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Re: Concentrated Stock position

Post by whodidntante »

You could gift the shares to other people. This is tax free for you.

If you can't take the tax hit of selling right now, or want to spread the pain, you could short an equivalent amount of Apple so you become market neutral. Or buy puts to preserve a value you are comfortable with. Both strategies should be seen as short term because hedging comes at a cost. But it would let you kick the can down the road.
Topic Author
turing17
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Re: Concentrated Stock position

Post by turing17 »

Thesaints wrote: Wed Apr 24, 2024 8:58 pm 7. Find an inversely correlated security and buy it.
How does one find that?
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cosmos
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Re: Concentrated Stock position

Post by cosmos »

whodidntante wrote: Wed Apr 24, 2024 9:05 pm You could gift the shares to other people. This is tax free for you.
This! Ill DM you my info so you can send me the shares and I will be happy to take the tax hit even here in CA!

:)
It's 106 miles to Chicago, we've got a full tank of gas, half a pack of cigarettes, it's dark... and we're wearing sunglasses. Hit it.
Topic Author
turing17
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Re: Concentrated Stock position

Post by turing17 »

whodidntante wrote: Wed Apr 24, 2024 9:05 pm You could gift the shares to other people. This is tax free for you.

If you can't take the tax hit of selling right now, or want to spread the pain, you could short an equivalent amount of Apple so you become market neutral. Or buy puts to preserve a value you are comfortable with. Both strategies should be seen as short term because hedging comes at a cost. But it would let you kick the can down the road.
Buying puts I understand. But short selling AAPL would create a constructive sale which I believe is a no-no by IRS/Brokerages and/or affects (resets?) the holding period of the original?
p1db
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Re: Concentrated Stock position

Post by p1db »

If you take early retirement you can sell it in small chunks every year to fund your expenses and pay little to no taxes on the long term capital gains.
If you are Married Filing Jointly, gains up to $94,050 are totally exempt from capital gain taxes.
CookieDough
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Re: Concentrated Stock position

Post by CookieDough »

p1db wrote: Wed Apr 24, 2024 9:32 pm If you take early retirement you can sell it in small chunks every year to fund your expenses and pay little to no taxes on the long term capital gains.
If you are Married Filing Jointly, gains up to $94,050 are totally exempt from capital gain taxes.
I was going to say something similar. If you expect the same or a higher tax rate in retirement, you could sell up to the top of your tax bracket each year, and buy VTI with the proceeds. If you expect a lower tax rate in retirement, wait until you retire, and then sell up to the top of whatever tax bracket you end up in each year. That's a mighty large profit you've got, but you can deal with it in small chunks over many years to reduce the tax burden.
rationalactor
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Re: Concentrated Stock position

Post by rationalactor »

I have 2X the “problem” with another tech stock ($2mm value today, 90%+ capital gains). I simply plan to spend down in early retirement. 18.8 percent capital gains is not that bad. Only challenge is that I am still a year or two out from retirement. So it could tank. But I have no need for the money now and figure that over the next 20 years I will be able to divest in a reasonable way. The stock represents about 12 percent of our net worth so I hate taking the risk that it will tank…yet there is a risk…I am 55 and would hate to lose the money
rossington
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Re: Concentrated Stock position

Post by rossington »

Hello OP,
Maybe you could move to a state with 0% income tax and save 12.3%.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
Rocky Mtn Man
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Re: Concentrated Stock position

Post by Rocky Mtn Man »

turing17 wrote: Wed Apr 24, 2024 9:25 pm
Thesaints wrote: Wed Apr 24, 2024 8:58 pm 7. Find an inversely correlated security and buy it.
How does one find that?
AAPL Puts are highly inversely correlated.
Valuethinker
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Re: Concentrated Stock position

Post by Valuethinker »

turing17 wrote: Wed Apr 24, 2024 7:26 pm Hello,
I have about 1M USD in the AAPL stock sitting on a long term gain of about 975K. So, if I were to sell, my tax bill will be 35.8%; 20% fed, 3.8 NIIT, 12.3% CA).

I am looking of a tax efficient way of diversifying this. I have read briefly about DAFs, CRUTs / NimCRUTS and Exchange Funds but would like to hear from the forum if there are other ways or what the implications of any of these are.

Also, how about doing covered calls 2-3 years out for an OTM or ATM call strike?
If you buy Puts on Apple, this will neutralise the equivalent part of your holding in Apple shares. Insurance, in effect.

Not sure about Covered Calls, would have to think that through.
Thesaints
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Re: Concentrated Stock position

Post by Thesaints »

Beware that buying ditm puts (or selling ditm calls) will reset your shares holding period
Topic Author
turing17
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Joined: Mon Apr 08, 2024 4:31 pm

Re: Concentrated Stock position

Post by turing17 »

Thesaints wrote: Thu Apr 25, 2024 9:23 am Beware that buying ditm puts (or selling ditm calls) will reset your shares holding period
The stock is already held for more than 1 year. So, any Puts/Calls does not affect its Long term status. The holding period may be suspended but it doesn't affect the underlying stock as it is already long term before the options purchased/sold. The gain/loss on the option itself may be short/long term depending on the DTE of the option. At least this is my understanding.
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Re: Concentrated Stock position

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Re: Concentrated Stock position

Post by xiangg_li »

rationalactor wrote: Thu Apr 25, 2024 12:31 am I have 2X the “problem” with another tech stock ($2mm value today, 90%+ capital gains). I simply plan to spend down in early retirement. 18.8 percent capital gains is not that bad. Only challenge is that I am still a year or two out from retirement. So it could tank. But I have no need for the money now and figure that over the next 20 years I will be able to divest in a reasonable way. The stock represents about 12 percent of our net worth so I hate taking the risk that it will tank…yet there is a risk…I am 55 and would hate to lose the money
Do you plan to buy put to protect your gain?
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