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 $100,000
Long-term capital gains 30,000
Trustee commission expense, allocable to corpus 5,000
The trust instrument allocates the capital gain to income.
a. Each beneficiary is entitled to receive income of $_________ .
b. The trust's DNI is $_______ .
c. The trust's Selecttaxable incomelossCorrect 1 of Item 3 is $__________ .
d. Each of the beneficiaries can report _____________ of gross income.

Answer 1

Answer:

a. Each beneficiary will receive;

= Ordinary income / 2

= 100,000/2

= $50,000

b. Trust's DNI is;

= Accounting income + exemption - long term capital gains

= (Ordinary income + long term gain - commission - personal exemption) + exemption - long term capital gains

= (100,000 + 30,000 - 5,000 - 300) + 300 - 30,000

= $95,000

c. Taxable income = Long term gain - exemption

= 30,000 - 300

= $29,700

d. Each beneficiary can report;

= DNI/ 2

= 95,000/2

= $47,500