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October 9, 2026 · Wendland Services Weekly · Issue three

Wendland Services Weekly — issue three: the small business stock window

Welcome back to the weekly briefing. This issue covers small business stock, a new Internal Revenue Service warning on exchange-traded fund strategies, and three year-end calendar items. You can sign up at wendlandservices.com/insights to get each issue by email.

Issue one covered the permanent estate exclusion and issue two the fourth-quarter deadlines. This week turns to how holdings are taxed when sold.

1. Qualified small business stock: shorter holds, a bigger cap

For qualified small business stock acquired after July 4, 2025, Section 1202 excludes fifty percent of the gain after three years, seventy-five percent after four years, and one hundred percent after five years. The per-company cap rose from ten million dollars to fifteen million dollars, indexed for inflation after 2026, and the alternative cap of ten times basis still applies when larger. The stock must be acquired at original issuance from a domestic C corporation whose aggregate gross assets did not exceed seventy-five million dollars, up from fifty million dollars, before and immediately after the issuance.

The gain not excluded under the three- and four-year tiers is taxed at up to twenty-eight percent, so with the three point eight percent net investment income tax the federal cost is roughly sixteen percent of the total gain at three years and about eight percent at four. Stock acquired on or before July 4, 2025 keeps the old rules, including the more-than-five-year hold and the ten million dollar cap, and a gift or bequest carries the holding period to the recipient. States differ: California and Pennsylvania add the gain back, Illinois and Oregon began requiring an add-back in 2026, and New Jersey began allowing the exclusion in 2026. Holders of founder or early-investor shares should collect issuance and gross asset records now.

2. Exchange-fund conversions are on notice

On September 28, 2026, the Internal Revenue Service released Notice 2026-62, describing potentially abusive investment fund strategies. The main target is the so-called Section 351 conversion, in which investors contribute appreciated stock to a new exchange-traded fund that soon hands those holdings out in redemptions and ends up with a different portfolio. Revenue Ruling 2026-20, issued alongside it, treats certain of these contributions as taxable exchanges. The notice also flags a partnership variation for concentrated positions, box spread funds, and tax-aware funds that pair ordinary losses with capital gains. The Internal Revenue Service may name some of these as listed transactions or transactions of interest, and says guidance could apply retroactively. Anyone using one of these products should review it with their advisers. Comments are due October 28, 2026.

3. Trust distributions and the sixty-five-day rule

A non-grantor trust reaches the thirty-seven percent bracket at sixteen thousand dollars of 2026 taxable income, and the net investment income tax starts at the same level. A married couple filing jointly reaches that bracket only at seven hundred sixty-eight thousand seven hundred dollars. Under Section 663(b), a trustee can elect to treat distributions made in the first sixty-five days of 2027 as paid in 2026. For a calendar-year trust, that window closes Saturday, March 6, 2027, and the election is made on the 2026 Form 1041 and becomes irrevocable after the filing deadline. Trustees should review 2026 income in December.

4. Medicare surcharges look back two years

Medicare sets the income-related surcharge on Part B and Part D premiums using modified adjusted gross income from two years earlier. For 2026, surcharges begin above one hundred nine thousand dollars for single filers and two hundred eighteen thousand dollars for joint filers, and the top tier brings the total Part B premium to six hundred eighty-nine dollars and ninety cents a month per person. The 2027 tiers are not yet published, but a large 2026 sale, Roth conversion, or opportunity zone inclusion will show up in 2028 premiums. Beneficiaries whose income dropped after a qualifying life event can ask the Social Security Administration for a redetermination. Medicare open enrollment runs from October 15 to December 7, 2026. For working family members, 2027 health savings account contribution limits are four thousand five hundred dollars for self-only coverage and nine thousand dollars for family coverage.

5. Waiting on the 2027 numbers

The Internal Revenue Service had not released the 2027 inflation adjustments for brackets, the estate exclusion, and the annual gift exclusion when this issue went out. Last year's arrived on October 9, 2025. Meanwhile, the 2026 annual gift exclusion of nineteen thousand dollars per recipient applies only to gifts made in calendar year 2026.

Calendar watch

If any of this touches your household, your trusts, or your family office, a second look before year end can be worthwhile. You are welcome to write to marcel@wendlandservices.com.

Wendland Services is an independent practice in Bellmore, New York, focused on accounting, bookkeeping, tax, and consulting for high-net-worth households and family offices.

This note is educational, not advice for your facts, and not an offer of legal services.

— Wendland Services marcel@wendlandservices.com