Jackpot Stock Scare Story

WHAT TO DO IF MUCH OF YOUR WEALTH IS IN A SINGLE ASSET AND YOU DON'T WANT TO BE CLOBBERED BY CAPITAL GAINS TAXES.

- by WILLIAM BALDWIN

Tax Hedger

From his Ohio base, Andrew Whitehair serves a national clientele of tech bros with mega gains. His advice: Don't get too technical with your tax maneuvers.

You're sitting on an immense unrealized gain on a volatile stock, and it's making you nervous. Should you sell and pay a lot of tax? Hold and run the risk of losing it all? Are there other options?

This affliction of the wealthy is one Andrew Whitehair is in business to cure. He's a 44-year-old CPA at Baker Tilly, a firm that assists businesses and prosperous individuals with tax and accounting challenges. He lives near Cleveland, a consequence of being the dutiful husband of a high-powered doctor, but has a national clientele.

We've had a bull market, especially in tech startups. The countryside is now littered with undiversified millionaires. In what follows, Whitehair looks at seven exit ramps for people with concentrated long-term positions in taxable accounts. They are presented in increasing order of cost, complexity and uncertainty.

By temperament, Whitehair leans toward simple solutions. “The things people do sometimes to jump through hoops to avoid tax is just not necessary,” he says.

1. SELL.

The first option Whitehair considers: “Bite the bullet.” Give up maybe a third of your money to tax collectors. What's left can go into a diversified index fund or a blend of stocks and bonds. ADVANTAGE: simplicity. DISADVANTAGE: missing out on various ways to avoid capital gains tax, such as the step-up at death.

2. EXIT SLOWLY.

“Space those sales out over a number of years and soak up some of the lower tax brackets,” Whitehair says.