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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 12663
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I live on California, what is my tax liability for a distribution

Resolved Question:

I live on California, what is my tax liability for a distribution from closing an Irrevocable Trust. The distribution is classified as Long Term Capital Gains.
Submitted: 10 months ago.
Category: Finance
Expert:  Megan C replied 10 months ago.

Megan C :

Thank you for your question, and thanks for using JustAnswer.com. How are you today?

Megan C :

Your federal tax rate will be 0, 15, or 20%, depending on your income.

Megan C :

0% if you are in the 10-15% tax brackets, 15% from there up to $400,000 per year of income and after you make $400,000 of income it's 20%

Customer:

What is my State tax liability?

Megan C :

In the state of California, the distribution is taxed as ordinary income

Megan C :

so you pay the same tax on it as you would any other income

Customer:

For both state and federal, should I pay the taxes up front to avoid either estimated tax payments or penalty?

Megan C :

If you do not want to owe at the end of the year, then yes - you should pay the tax up front

Customer:

I was told that the trust is responsible for paying the capital gains taxes before distribution. Is this true in some cases if so when?

Megan C :

The tax would be passed on to the beneficiary as the income from the trust is distributed to them.

Megan C :

The trust reports income, and gets a deduction for the amount distributed to beneficiaries.

Megan C :

If the trust does not distribute income during the tax year, then the trust pays the tax as it is due

Megan C :

But, typically the trust taxes are pretty close to the taxes as an individual

Customer:

I forgot to mention, the Trust will be dissolved. The same answer for paying taxes is true in this case too?

Megan C :

Yes, the tax would pass through to the beneficiary

Customer:

Can you tell me what Federal and State forms are required when submitting the tax payment?

Megan C :

For federal it would be 1040-ES because it would be an estimated tax payment and for California it would be 540-ES

Customer:

Thanks Megan for your answers. I have no more questions. You have been much help!

Megan C :

Glad I could help. If you would, please rate as "excellent" so that I may receive credit for assisting you today

Customer:

Sure, I just rated you as Excellent.

Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 12663
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and other Finance Specialists are ready to help you
Expert:  Megan C replied 10 months ago.
Thanks for your positive rating. Please come back and visit me any time you have a question that needs answered. It was a pleasure working with you today.

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