Question

2. The Alright Trust is a simple trust. The annual accounting income is to be distributed equally to Ben and Sarah. The Trust reports the following: Dividend income Long-term capital gain (allocable to corpus) Trustee allocable to corpus $100,000 30,000 5,000 Compute the following:

a. Trust accounting income:

b. Total taxable income

c.Trust DNI

d. Distribution deduction

e. Trust taxable income

f . Amount and character of income reported by each benefiicary

Answer 1

a.) Trust accounting income is $100,000 since the Dividend income received by trust shall be included in the Statement of Profit & Loss account of the trust. Long-term capital gain is a part of taxable income, hence not includible.

b.) Total taxable income:

Dividend- $100,000

Long term capital gain-$ 30,000

Trustee allocable- $5,000

Total taxable income= $135,000

c.) Trust DNI( Distributable net Income)= $(100,000+30,000+5,000)-30,000-5,000= $100,000

The amounts allocable to surplus shallbe first included and then deducted since it is not taxable.

e.)

Trust Taxable income:

Dividend income- (Taxable)- $100,000

Long-term capital gain(allocable to corpus) Not taxable- $0

(since, the amount is allocable to corpus)

Total taxable income = $100,000

f.) Amount of income reported bu each beneficiary=

$(30,000+5,000)= $35,000 since allocable to Ben and Sarah equally i.e

$35,000/2= $17,500 each for Ben and Sarah.