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ShawnA
ShawnA, CPA, Professor, CFP. CGMA, Business Consultant, Professor, PFS I have decades of experience answering these questions.
Category: Tax
Satisfied Customers: 2884
Experience:  CPA, Professor, CFP. CGMA, Business Consultant, Professor, PFS I have decades of experience answering these questions.
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If a trust pays any tax on the income why would you have K

Customer Question

if a trust pays any tax on the income why would you have K-1's?
Submitted: 9 months ago.
Category: Tax
Expert:  Charles Markham replied 9 months ago.
Hey, there. We are both in Massachusetts. Does the K-1 have any numbers on it or is the K-1 completely blank (or filled with nothing but zeroes)
Expert:  Charles Markham replied 9 months ago.
Also, how familiar are you with trust taxation in general and IRS Form 1041?
Customer: replied 9 months ago.
i am doing the trust return and I think I have done it wrong, The trust is paying the tax so why would I have K-1's
Customer: replied 9 months ago.
waiting for an answer
Expert:  Charles Markham replied 9 months ago.
Hi, sorry I stepped away
Expert:  Charles Markham replied 9 months ago.
If you are preparing a Trust return and it is generating K-1's (and the K-1's have numbers on them), then the trust is NOT paying all the tax. But I can walk you through this. Are you doing this on TurboTax?
Customer: replied 9 months ago.
i put in the K-1's The trust is not automatically generating them. So why would I need them if the the trust is paying the tax on the income. It is a complex trust. No, not on turbo tax.
Expert:  Charles Markham replied 9 months ago.
You don't need any K-1's, but the K-1's are harmless if they have no income being reported on them.
Expert:  Charles Markham replied 9 months ago.
Look on page 2 of Form 1041. What is the number on Schedule B, Line 7 "Distributable Net Income"?
Customer: replied 9 months ago.
The trust seems to generate K-1.s for dividends and then it pays a small tax, But now there is a large capital gain and the trust is paying the tax on than and the capital gain is not going to the K-1's so maybe that is ok
Expert:  Charles Markham replied 9 months ago.
And is there a number on Page 1, Form 1041, Line 18, Income Distribution Deduction?
Expert:  Charles Markham replied 9 months ago.
Line 18 is the big question.
Customer: replied 9 months ago.
I will look at it tomorrow. By the way, you are an enrolled agent. Do you work for Block I am home right now and doing this from memory and something about the return bothered me, thus my question to you.
Expert:  Charles Markham replied 9 months ago.
No, don't work for HRB. I have my own practice in Norwell, MA
Expert:  Charles Markham replied 9 months ago.
The key to your original question is Line 18 page 1. If that number is ***** there is no income flowing out to K-1s. If there is a number on Line 18, then you are taxing the shareholders (somewhat), and in the case of a complex return it can be both--the trust pays taxes andthe beneficiaries are taxed--just not on the same income.
Expert:  Charles Markham replied 9 months ago.
If you have a question tomorrow, please post it here, however it may be a while before I get in the office and see it.
Expert:  ShawnA replied 9 months ago.
Please let me know if you have further questions. I will also offer a call (to keep your information private)