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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29483
Experience:  Taxes, Immigration, Labor Relations
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In filling out and completing a complex trust on a

Customer Question

In filling out and completing a complex trust on a 1041....the trust does not take a
deduction for distribution and pays all of the taxes due. Can the trust then make
a $ distribution to a beneficiary (who does not need to pay taxes since the trust
already paid the taxes when it filed the 1041) ???
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

If the trust makes distribution in the SAME tax year - the distribution is first allocated to income and reported as taxable income for beneficiaries.
The trustee may make special election and make distribution within 65 days after the end of the tax year - and treat that distribution as made withing the tax year - but otherwise - we need to be strict for all transactions occurred during that tax period only.

Expert:  Lev replied 1 year ago.

So - for any distribution - income is distributed first.

After all income is distributed - the rest of distribution is allocated to the corpus and is not taxable.
But if the trust delays distribution to the nest tax year - then it is possible that the trust pays income tax on income and added the after tax funds to the corpus which may be distributed in the following tax year.


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