Estate, Trust & Gift Tax

Question 0

What is the tax year of an Estate?

Answer 0

a) calendar year - tax return is due on April 15th

b) fiscal year - tax return is due on the 15th day of the fourth month after year end

Question 1

When is an Estate required to make estimated tax payments?

Answer 1

An Estate is exempt from making estimated tax payments for its first two tax years.

Question 2

When is a tax return required for an Estate?

Answer 2

Required when annual income exceeds $600, the exemption amount for an estate.

Note: no standard deduction is allowed.

Question 3

Income distributed to the beneficiaries

Answer 3

Income distributed to the beneficiaries retains the same character as the income had at the fiduciary level.

Question 4

Income distribution deduction

Answer 4

The income distribution deduction equals the lesser of the following:

a) actual distribution to beneficiary or
b) DNI (less adjusted tax exempt interest)

Question 5

Distributable Net Income (DNI)

Answer 5

DNI is a limitation on the amount the trust or estate can deduct with respect to distributions to beneficiaries.

GROSS INCOME (includes capital gains) less DEDUCTIONS = ADJUSTED TOTAL INCOME plus ADJUSTED TAX-EXEMPT INCOME less CAPITAL GAINS = DNI

Question 6

What is the tax year for a trust?

Answer 6

All trust, except tax-trust, must use the calendar year.

Question 7

Trust Distributable Net Income

Answer 7

Trust may deduct amounts distributed to beneficiaries up to the DNI (less adjusted tax exempt interest).