Here are some strategies to avoid paying the large tax bill associated with that stock. As with anything, there may be downsides to each of these strategies and pros/cons that differ for each investor. Welcome Net Unrealized Appreciation (NUA).
1. Yearly Budget
Create a yearly budget that coincides with some other tax strategies we can discuss.
2. Charity
Donation to charity gives you a tax deduction and eliminates the tax consequences. Double win!
3. Exchange Funds
Simply put, many individuals combine their highly appreciated stock into an exchange fund. This solves two things:
- It diversifies your exposure.
- Delays your tax burden until the exchange fund shares are sold.
There are negatives to consider with this as well.
4. Transfer Shares
You can transfer then sell some shares to your child (or another family member), who has a 0-10% tax bracket. Similarly, transferring to a UTMA can help shield a small number of stock sales. See here
5. Opportunity Zone funds
Investing in funds that are zoned as Opportunity Zones have attractive tax deferral benefits.
- A discussion on the risk/reward of this strategy should be considered
