Corelle is a simple trust that correctly uses the calendar year for tax purposes. Its income beneficiaries (Kathie, Lynn, Mark, and Norelle) are entitled to the trust’s annual accounting income in shares of one-fourth each. For the current calendar year, the trust incurs ordinary business income of $40,000, a long-term capital gain of $20,000 (allocable to income), and a trustee commission expense of $4,000 (allocable to corpus). Use the format of Exhibit 20.5 in the text to address the following items:
a.How much income is each beneficiary entitled to receive? b.What is the trust’s DNI? c.What is the trust’s taxable income? d.How much is taxed to each of the beneficiaries?
What will be an ideal response?
| a. | $15,000 (1/4 of $60,000 accounting income). |
| b. | $56,000. |
| c. | ($300). |
| d. | $14,000 (1/4 of $56,000 DNI). |
| ???Item | ???Totals | ??AccountingIncome | TaxableIncome | Distributable NetIncome/DistributionDeduction | |
| Ordinary income | $40,000 | $40,000 | $40,000 | ||
| Net long-term capital gain | 20,000 | 20,000 | 20,000 | ||
| Fiduciary fees | 4,000 | (4,000) | |||
| Personal exemption | (300) | (300) | |||
| Accounting Income/Taxable Income Before the Distributions Deduction | ? | ?$60,000STEP 1? | $55,700STEP 2 | $55,700 | |
| Exemption | 300 | ||||
| Corpus Capital Gain/Loss | |||||
| Net Exempt Income | |||||
| Distributable Net Income | $56,000 | ||||
| Distribution Deduction | ? | (56,000)*STEP 3 | |||
| Entity Taxable Income | ? | ($ 300)STEP 4 | |||
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