C:14-39

Determination of Taxable Income. Refer to Problem C:14-38. Assume the trustee must pay out all of its income currently to its beneficiary, Julio. a. What is the deductible portion of the trustee's fee? b. What is the trust's taxable income exclusive of the distribution deduction? c. What is the trust's DNI? d. What is the trust's taxable income using the formula approach of Figure C:14-1?

Determination of Accounting Income and Distribution. The Trotter Trust, a simple trust, has the receipts and expenditures listed below for the current year. Assume the Uniform Act governs an item's classification as principal or income. The trustee's fee is charged onehalf to principal and one-half to income. What is the trust's net accounting income and the maximum amount it can distribute? Assume the trust instrument precludes distributing principal currently. Determination of Accounting Income and Distribution. The Trotter Trust, a simple trust, has the receipts and expenditures listed below for the current year. Assume the Uniform Act governs an item's classification as principal or income. The trustee's fee is charged onehalf to principal and one-half to income. What is the trust's net accounting income and the maximum amount it can distribute? Assume the trust instrument precludes distributing principal currently. Determination of Taxable Income. Refer to Problem C:14-38. Assume the trustee must pay out all of its income currently to its beneficiary, Julio. a. What is the deductible portion of the trustee's fee? b. What is the trust's taxable income exclusive of the distribution deduction? c. What is the trust's DNI? d. What is the trust's taxable income using the formula approach of Figure C:14-1? EXAMPLE C:14-1 For calendar year 2021 , a trust reports taxable income of $15,000, all from interest on corporate bonds. Its tax liability is $3,868, ignoring the 3.8% tax on net investment income. In contrast, an unmarried individual not qualifying as a head of household would owe taxes of $1,601 on $15,000 of taxable income. Assuming that MAGI also is $15,000, the additional tax on the trust net investment income is $74[($15,000$13,050)0.038]. No Double Taxation. Unlike the situation for corporations, no double taxation of income earned by an estate or trust (a fiduciary taxpayer) occurs because an estate or trust receives a deduction for the income it distributes to its beneficiaries. The beneficiaries, in turn, report the taxable portion of their receipts as income on their individual returns. Thus, the current income is taxed once, to the fiduciary or to the beneficiary or some to each, depending on how much is distributed. In total, all the estate or trust's current income is taxed, sometimes some to the fiduciary and the remaining amount to the beneficiary. One of the primary purposes of the Subchapter J rules is to address exactly where the estate or trust's current income is taxed