Fiduciary Taxation

Question 1

Fidicuary - Income Tax Retrn

Answer 1

FORM 1041 - filed every year there is taxable income

*On estates and trusts

estate is created at date of death – one time return

Question 2

Filing Requirements

Answer 2

FORM 1041 - April 15th

ESTATES - calendar or fiscal year
TRUSTS - calendar year MUST

Question 3

Income Concepts

Answer 3

income is taxed only once either to the fiduciary or the beneficiary

A distribution deduction for fiduciary prevents double tax

**Follow the money
Income taxed to beneficiaries retains its character

Question 4

Costs/losses

Answer 4

Administration costs and losses during the administration of the estate may be deducted by the estate.

IF deducted on fiduciary return, CANNOT also be deducted on the estate tax return

Question 5

State Inheritances/Estate taxes

Answer 5

NOT deductible for estates or individual taxpayers on income tax returns

State and local taxes that are deductible for estates and individuals inclue INCOME taxes, PERSONAL AD valorem property taxes, and REAL PROPERTY taxes

Question 6

Extraordinary Items

Answer 6

these are allocated to pricipal; that is, payments that are made irregularly such as the proceeds from a fire

Question 7

Exemptions

Answer 7

Fiduciary gets a personal exemption

• ESTATE: = $600
• TRUST:
  Simple/complex tht distribute all income currently = $300
  Complex = $100

Question 8

Income in Respect of a Decedent - IRD

Answer 8

Gross income includes income IRD

Income that was earned by the decedent but NOT constructively received before death

INCLUDED in the gross estate for estate tax purposes and in taxable income for the estate also
*Character remains same as what would have been for decedent

Question 9

Distributable Net Income - DNI

Answer 9

The estate/trust MUST pay tax on any income NOT distributed to beneficiaries

**Income distriibuted to beneficiaries is NOT taxed to the estate or trust

EQUALS the MAX amount the entity can use as a distribution deduction for the year AND on which the beneficiaries can be taxed (beneficiaries may be taxed on less since DNI includes tax exempt interest)

Question 10

DNI Formula

Answer 10

Taxable Income 
\+ net tax-exempt income
\+ personal exemption
\+ net capital loss
- net cap gains allocable to corpus 
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
DNI

**MAX amount taxed to beneficiaries

Question 11

Charitable Contributions

Answer 11

Deduction can be taken on estate’s fiduciary return ONLY if the decedent’s will specifically provides for the contribution