Income tax on estates and trusts

Question 1

A fiduciary must file a tax return form______for estates and trusts

Answer 1

Form 1041 must be filed by fiduciary of an estate of trust.

Question 2

What is the requirement for filing?

Answer 2

Estates with gross income of $600 or more for the year

A trusts with any taxable income or if no taxable income, gross income of $600 or more for the year.

Question 3

When is the due date of estate and trust returns?

Answer 3

Due date is the 15th day of the fourth month following the close of the entity’s taxable year.

Question 4

What year must trusts and estates use?

Answer 4

Trusts must use calendar year

Estates can adopt a fiscal year.

Question 5

What are simple trusts?

Answer 5

Those trusts that are not complex trusts
Required to distribute income currently to beneficiaries
Cannot have a charitable organization beneficiary
Cannot distribute corpus
Income is taxed to the beneficiaries, not the trust.

Question 6

What are complex Trusts?

Answer 6

Those trusts that are not simple trusts
Can have charitable organization beneficiaries
Can accumulate income
Can distribute trust corpus

Question 7

What are grantor trusts?

Answer 7

When grantor retains control over the income or corpus or both. The trust is ignored for income tax purposes and the income is taxed directly to the grantor of the trust.

Question 8

What are the allowable perosnal exemptions for estates, simples trusts and complex trusts?

Answer 8

Estates $600
Simples Trusts $300
Complex Trusts $100

Question 9

What is Distributable Net Income?

Answer 9

Is the maximum amount of deduction for distribution to beneficiaries in any taxable year and also determines the amounts and character of the income reported by the beneficiaries.

Question 10

Is a grantor trust a separate taxable entity?

Answer 10

A grantor type trust is a legal trust under applicable state law that is not recognized as a separate taxable entity for income tax purposes because the grantor or other substantial owners have not relinquished complete dominion and control over the trust.

Question 11

Are estates required to make estimated payments of income tax?

Answer 11

Estates are required to make estimated payments of income tax except during the first 2 tax years of existence. No estimated payments are required during the estate’s first 2 tax years.

Question 12

When does an estate come into existence?

Answer 12

An estate as a legal entity comes into existence upon the death of an individual.

Question 13

Which of the following types of entities is entitled to the net operating loss deduction?

A. Partnerships.
B. S corporations.
C. Not-for-profit organizations.
D. Trusts and estates.

Answer 13

D. Trusts and estates.

Question 14

Ordinary and necessary administration expenses paid by the fiduciary of an estate are deductible

Answer 14

Administration expenses (and debts of a decedent) are deductible on the estate tax return, and some may also qualify as deductions for income tax purposes on the estate’s income tax return. Double deductions are disallowed. A waiver of the right to deduct them on Form 706 is required in order to claim them on Form 1041.

Question 15

What is the rule for deduction for distributions?

Answer 15

The deduction for distributions is the lesser of the amount of distributions and distributable net income (DNI).

Question 16

Generally, distributable net income is:

Answer 16

distributable net income is current net accounting income reduced by any amounts allocated to corpus.

Question 17

How do you calcualte estates DNI?

Answer 17

TI
\+Personal Exemption
\+Any net Capital loss deduction
\+Tax exempt interest/dividends (reduced by related nondeductible expenses)
-Net CGs allocable to the corpus.

Question 18

Estates are required to make estimated payments of income tax except when?

Answer 18

Estates are required to make estimated payments of income tax except during the first 2 tax years of existence. No estimated payments are required during the estate’s first 2 tax years.