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Rick Martin
Rick Martin, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 93
Experience:  CPA
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Is money taken out of a trust taxable? It is a Complex trust

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Is money taken out of a trust taxable? It is a Complex trust and the money is for education expenses.

Hi, this is Rick. I'm a CPA based in NYC. Generally, when the trust earns money, it is taxable, whether the money is taken out or not. But it really depends on the trust and the nature of the distribution.

A complex trust is one that is allowed to accumulate income, whereas a simple trust can't. But whether the money is taxable depends.

Who is preparing the tax return for the trust, yourself or an outside advisor?

Customer: replied 2 months ago.
myself. The trust owes money for earnings on dividends and I have a K-1 for the Trustee.
Customer: replied 2 months ago.
I am confused with withdrawals from it, does that have to be distributed as well?

Generally speaking, the K1 recipient reports income per the K1 and the trust reports its own income. Cash distributions from a trust may or may not equal the amount on the K1.

Customer: replied 2 months ago.
I am asking specifically on money used to pay for school, which is what the trust was formed for.

It depends on a lot of things. Have a look at this and see if any of it resonates.

http://finance.zacks.com/education-trust-fund-disbursements-taxable-11510.html

Was this trust specifically setup to pay education expenses?

Basically, the article says that the distributions could be taxable, but it depends on the terms of your particular trust. Do you have the trust document so that you can review it?

Customer: replied 2 months ago.
Thanks!

Let me know if I can help more. I'm happy to go deeper into the trust document with you. If you're satisfied with my help, please give me good feedback. Otherwise let me know how I can further help. -Rick

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