Question: A simple trust has the following receipts
A simple trust has the following receipts and expenditures for 2017. The trust instrument is silent with respect to capital gains, and state law concerning trust accounting income follows the Uniform Act. Assume the trustee’s fee is charged equally to income and to principal.
Corporate bond interest……………$40,000
Tax-exempt interest…………………….9,000
Long-term capital gain……………….5,000
trustee’s fee………………………………2,000
Distribution to beneficiary………..48,000
a. What is the trust’s taxable income under the formula approach of Figure C:14-1?
b. What is the trust’s tax liability?
Figure C:14-1?
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Tax on taxable Gross Income (same rules as for individuals) income (using rates in Secs. 1(e) and 1(h)) Minus Minus Deductions for expenses (interest, taxes, tax return preparation fees, trustee's fee, trade or business Credits expenses, expenses related to production of income, depreciation. and charitable contributions) Equals Net tax liability Minus Distribution deduction (maximum is Distributable Net Income [DNI] minus net tax-axempt income) Minus Exemption deduction Equals Taxable income "No deduction is available for expenses allocable to tax-exempt income. When the trust instrument is silent, depreciation is allocated for tax purposes between the fiduciary and the beneficiary according to the portion of income attributable to each. "Trusts and estates are subject to the alternative minimum tax (AMT). The AMT may be owed by a trust or estate in addition to the income tax levy described in this figure. The AMT is calculated in the same way as for individual taxpayers. Trusts and estates, however, are allowed only a $24,100 statutory exemption in 2017. The phase-out for the exemption begins at $80,450.
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