Fiduciary Tax

Question 1

How are distributions taxed with a trust

Answer 1

Taxed to either the fiduciary or beneficiary. Distribution deduction is available to prevent double tax.

The distribution is not taxed to the trust and the maximum amount taxable to the beneficiary is the distributable net income. If there is more than one beneficiary, it is proportionate to the available DNI.

Question 2

An estate qualifies for deductions for what amount:

Answer 2

Gross income paid or permanently set aside for qualified charitable organizations. AGI limits for individuals do not apply.

Charitable Contribution must be specifically provided for in will. It is not limited like an individual is.

Expenses of administering an estate can be deducted either from gross estate in figuring out estate tax or from estate’s income tax. Only one not both. Estate tax must be waived for it to be deductible on income taxes.

Most deductions are similar to individuals. State taxes that are deducted are income taxes, personal ad valorem property taxes, real property taxes.

Question 3

What goes into distributable net income?

Answer 3

DNI is the maximum amount that the entity can use as a distribution eduction for the year and on which beneficiaries can be taxed. It includes:

. extraordinary dividends and taxable stock

2. capital gains/losses
3. nontaxable income
4. gains excluded from gross income under 50% exclusion for qualified small business gain
5. distribution deduction
6. personal exemption
7. deduction for estate tax attributable to income in respect to decedent.

Capital gains are excluded from distributable net income if gains are allocated to corpus and it is not paid, credited or required to be distributed to a beneficiary or not paid or set aside for charity.

If there is excess, it is taxed, otherwise it is taxed to the beneficiary.

Question 4

Filing Requirements for a fiduciary:

Answer 4

An executor of a decedent’s estate that has only US citizens as beneficiaries is required to file a return if the estate’s gross income for the year is at least $600 or if it has any taxable income. $300 exemption for simple trust and for complex trusts that distribute all of their income. $100 for other complex trusts.

Filing due date is same as individuals, 15th day of 4th month after close of taxpayer-s tax year. Short period returns must be filed before the 15th of the 4th month after the close of the short period.

Estates do not need to use calendar year but trusts due unless they are tax-exempt.

The standard deduction for an estate is $0

Question 5

What is allocated to a principal and what is allocated to the interest of a trust?

Answer 5

Extraordinary and irregular items are allocated to principal.

Regular payments are allocated to interest.

Question 6

What does gross income include:

Answer 6

Income in respect of a decedent which is income that was earned by the decedent but not constructively received before death. It is includable in gross estate and taxable.

Question 7

DNI Computaion from Taxable Income:

Answer 7

Taxable Income
\+Net tax-exempt income
\+Personal exemption
-Net capital loss
-Net capital gains allocable to corpus