Question

The Allwardt Trust is a simple trust that correctly uses the calendar year for tax purposes. Its income beneficiaries (Lucy and Ethel) are entitled to the trust's annual accounting income in shares of one-half each.

For the current tax year, Allwardt reports the following.

Ordinary income $210,000 Long-term capital gains, allocable to corpus 63,000 Trustee commission expense, allocable to corpus 10,500

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 gross income is reported by each of the beneficiaries?

Answer 1

a) How much income is each beneficiary entitled to receive?

Each benefeciary will receive half of the annual accounting Income.

So Income to each benefeciary = $210,000 * (1/2) = $105,000

b. What is the trust's DNI?

Particulars	Amount
Ordinary Income	$210,000
Long Term Capital Gain	$63,000
Trusty Commission Expenses	($10,500)
Standard Exemption	($300)
Taxable Inome Before Distribution Deductions	$262,200
Long Term Capital Gains	($63,000)
Standard Exemption	$300
Distributable Net Income (DNI)	$199,500

Hence, Trust's DNI is $199,500

c. What is the trust's taxable income?

Trust's Taxable Income = Total Income Before Distribution Deductions - Distributable Net Income

= $262,000 - $199,500

Trust's Taxable Income = $62,700

Hence Trust's Taxabe Income is $62,700

d. How much gross income is reported by each of the beneficiaries?

Gross Income to be reported by each benefeciary = Distributable Net income * (1/2)

= $199,500 * (1/2)

Gross Income to be reported by each benefeciary = $99,750

Hence gross income to reported by each of the beneficiaries is $99,750