Should I Sell Stocks to Avoid Taxes? Why That Is a Mistake
Afraid to sell stocks because of capital gains tax? Learn why letting tax concerns override investment strategy costs you more than the tax itself
Invest.Sensei
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Dec 25 2025
You're sitting on massive gains. Your portfolio is up 50%, maybe more. You know the market feels expensive, and every rational instinct says it's time to take profits. But then you calculate the tax bill, that 25% capital gains tax, and suddenly selling doesn't feel so smart anymore. Maybe you tell yourself you'll wait until next year. Maybe you convince yourself the stock will keep climbing. Sound familiar?
This exact dilemma is playing out in thousands of investor accounts right now. After local markets posted their strongest performance since 1992 and Wall Street continued breaking records, the psychology of selling has become complicated by tax anxiety. The question investors keep asking is whether avoiding taxes justifies holding overvalued positions. The short answer is no, but understanding why requires looking at how fear of taxes distorts investment decisions.
When markets rally hard, you'll hear investment managers, CEOs, and analysts predicting further gains. They have to be optimistic because that's their business model. Their massive positions require them to believe in rising prices. Meanwhile, controlling shareholders are quietly selling, and institutional funds are buying stocks at valuations two or three times higher than last year, sometimes at price-to-earnings ratios of 40 or more, using money collected from pension contributions and provident funds. As markets rise, valuations stretch on every measure, from price-to-earnings to price-to-book ratios. This is simple mathematics, not opinion.
Many investors facing this reality tell a similar story. Take someone who bought $TWLO at 32 to 33 dollars. When it hit 90 dollars, they sold half, thinking the market was expensive. At 100 dollars, they sold the other half. Now the stock trades at 120 dollars. They missed additional gains and paid enormous taxes on the profits they did take. The regret is real, but it comes from confusion about two separate problems.
Timing the exact peak of any stock is impossible. Nobody can do that consistently. Timing your tax payments, however, is completely within your control. The real question is whether tax timing should drive your investment decisions, and the answer is almost always no.
Here's what happens psychologically. As the market keeps rising, fear of missing out battles with the belief that stocks are overvalued. Eventually, the overvaluation argument wins and you convince yourself to sell. But immediately a new problem appears. Selling now means paying full tax on your gains. After a year when almost no securities went down and portfolios are exploding with profits, that theoretical 25% tax liability suddenly becomes very real the moment you sell.
So investors postpone. They say they'll wait until next year to sell, finding reasons to delay. Maybe there will be losses from other securities to offset the gains. Maybe tax rules will change. Maybe the market will correct and the tax bill will shrink along with the profits. Anything can happen in the future, and maybe waiting will turn out right, but that's wisdom in hindsight, not strategy.
The effective decision at this moment comes down to a simple question. If the price has reached your target selling price based on valuation, portfolio balance, or risk management, should you sell even if it means paying full tax? The alternative is waiting and hoping the stock falls so you pay less tax, but that also means earning less profit. Does that make sense?
It's not rational, it's psychological. The tax payment makes you feel like you didn't earn what you should have. It creates the illusion that postponing the sale or finding ways to avoid the tax increases your wealth. But consider what you're actually comparing. The temptation to avoid paying taxes feels similar to the temptation to earn more profits because both seem to increase your capital. In the first case you increase profit and capital grows. In the second you reduce taxes and capital grows. But these are actually opposing processes with a direct, not inverse, relationship.
Think about the mathematics clearly. Would you rather hold a position that falls 30% to avoid paying 25% tax on gains you already have? If a stock you bought at 50 dollars rises to 100 dollars and you sell, you pay 12.50 dollars in tax on your 50 dollar gain, leaving you with 87.50 dollars total. If you wait to avoid the tax and the stock falls to 70 dollars, you now have only 70 dollars and a smaller tax bill on a smaller gain. You protected yourself from a 12.50 dollar tax payment by accepting a 30 dollar loss in value. That's not intelligent tax planning, that's loss aversion masquerading as strategy.
Investment discipline means following your strategy regardless of tax implications. When a position reaches your target price, when valuation no longer makes sense, when portfolio balance is disrupted because one holding grew too large, these are investment reasons to sell. The tax is simply the cost of having been right. Higher tax on securities gains means higher profits earned. It means your investment decisions worked, you held through volatility, picked well, and had patience to let winners run.
Nobody ever went broke taking profits, even after taxes. The real mistake isn't paying tax on gains. The real mistake is letting tax considerations override investment strategy and discipline. This is one of the most important principles in investing: the ability to resist temptation and maintain discipline. The temptation for more profits makes people greedy and pulls them away from rational decisions. The temptation to avoid taxes works the same way, disrupting the balanced thinking that builds wealth over time.
When you're sitting on significant gains and the tax bill feels painful, that pain is actually the sign of success. Every dollar paid in capital gains tax represents multiple dollars earned in profit. The higher your tax payment, the more successful your investing has been. Would you prefer a year with no tax on stock gains because you had no gains, or a year with a substantial tax bill because your portfolio performed exceptionally well?
So here's a genuine wish for the coming year. May you pay more tax on stock market gains than you ever have before, because that would mean you've had your best investing year yet. If you're looking at positions now wondering whether to take profits or wait, ask yourself what the investment case is today based on valuation, risk, and portfolio strategy, not what the tax impact will be tomorrow. The discipline to act on strategy rather than tax anxiety is what separates successful long-term investors from those who let psychological biases make their decisions.
For investors struggling with when to sell stocks despite tax implications, or looking for deeper analysis on how to approach individual positions while maintaining investment discipline regardless of tax considerations, understanding the full picture of each holding can help you see beyond the immediate pain of a tax bill to the longer-term success it represents.
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Please note that the article should not be considered as investment advice or marketing, and it does not take into account the personal data and requirements of any individual. It is not a substitute for the reader's own judgment, and it should not be considered as advice or recommendation for buying or selling any securities or financial products.
