I am the trustee of a complex trust.
I entered the qualified dividends on line 1b. I want to attribute some to the trust and some to the beneficiary.
However, the values for beneficiary's share of current year income etc. is the same whether ALL or SOME of the qualifies dividends are allocated to the beneficiaries vs. the trust. This does not make sense.
How can some of the income be allocated to the trust so that the trust pays the tax?
@Oak_Fid_Agent wrote:How can some of the income be allocated to the trust so that the trust pays the tax?
When you make a distribution in the program, you can make a selection as to how much (or what percentage) is allocated to the beneficiary(ies).
The qualified dividends will follow the ordinary dividends (in proportion) as qualified dividends are merely a subset of ordinary dividends.
I overrode the program and entered a dollar amount on line 2b for the beneficiaries and a dollar amount for the trust. The values on the K-1 form were identical to whenn all of the dividends were automatically allocable to the beneficiaries.
I don't know what you mean when you say "make a distribution" in the program.
I entered the exact dollar value of each beneficiaries distribution. All of the money in the trust was NOT distributed. About half still remained in the trust (in a separate account with same tax ID). So I want some of the dividends to be allocated to beneficiaries and some to the trust (as these dividends were added to the principle which remained in the trust).
TurboTax does not seem to allow me to do this.
@Oak_Fid_Agent wrote:TurboTax does not seem to allow me to do this.
That's because the qualified dividends, by default, are allocated to the beneficiaries in the same proportion as the beneficiaries share of DNI (other tax programs operate in the same manner, FYI).
If, for example, the beneficiaries are receiving 50% of DNI (and the income is 100% dividends), then they are allocated 50% of the qualified dividends.
Yes, that is exactly what is happening. Each beneficiary is allocated the exact proportion of the qualified dividends as their share of the DNI. So, then, is there no way to over-ride this so that the trust pays some of the tax? In my case, the trust is paying zero tax (with write offs a a 3K capital loss) and moving some of the dividends to the trust will save the beneficiaries taxable income.
It is also not accurate when the trust DID keep some of the interest.
If the trust is a complex trust (marked as such in the program) and you have the authority to do so, then you can make any allocation you want (again, as long as the trust does not require you to distribute all income currently).
I am sorry, I am still confused. I tried to allocate some qualified dividends to the estate/trust (line 2b (2) but the K-1 that was generated was not different from when NO qualified dividends were allocated to the estate. How can I force the program to allocate some dividends to the trust and have the values change on the K-1s? the only place this is possible is income line 2b. Yet changing these numbers makes no difference on the K-1. Yes I did check complex trust and no the trust does not require me to distribute all the income annually. again, it appears there must be something not working in the software, as no matter what I enter in lines 2b the K-1s that are generated do not differ.
Now I'm confused. Are you trying to vary the ratio between ordinary dividends and qualified dividends?
You should simply be able to distribute the ordinary dividends however you want and the qualified dividends will follow in that same percentage.
Crude example for this scenario:
Ordinary dividends: $10,000
Qualified dividends: $6,000
Distribute $5,000 to the beneficiaries; $5,000 allocated to the trust (total $10,000)
$3,000 of the qualified allocated to the beneficiaries and $3,000 allocated to the trust.
sure--if I could distribute ordinary that would solve the problem. How do I do that in Turbo Tax?
there's just one line (2a) to enter ordinary dividends and it does not allow me to decide what amount to allocate to the trust and what amount to beneficiaries. I do understand that whatever the allocation is from ordinary will follow through to the qualified. The amount on line 2a is from 1099-DIV forms. I have two forms--One that indicates what the trust KEPT and the other that was distributed to the beneficiaries. TT only allows me ONE entry for line 2a.
You can't enter more than one 1099-DIV on Line 2a; the 1099-DIVs are combined (even if the trust receives a dozen or more).
Although I understand that you may have received more than one 1099-DIV, I fail to understand your statement to the effect that "One that indicates what the trust KEPT and the other that was distributed to the beneficiaries" as 1099s generally don't dictate what is distributed to beneficiaries and what is retained by a trust.
The following are screenshots of what I get when I enter the figures (and distributions) in the hypo from my previous post.
I am able to split the amount on line 2b.
What form is the PART III below? I looked through every form and I don't see it.
@Oak_Fid_Agent wrote:What form is the PART III below? I looked through every form and I don't see it.
That is Part III of a K-1.
Now I'm wondering if the reason this is the case is that the trust is paying zero taxes and the IRS wants its money so is not allowing the trust to take any of the dividends? But I should be able to allocate some of all of the distributions to the trust, no?
I'm going to start from scratch and create a brand new document. Maybe there was a problem when I saved the original. Perhaps it didn't erase some of the information and the override didn't work. I'll let you know.
this is incredibly frustrating but I'm not going to give up!
I appreciate your time helping me work out these kinks.
@Oak_Fid_Agent wrote:
......But I should be able to allocate some of all of the distributions to the trust, no?
Yes, absolutely, assuming the trust doc gives you the authority to do so.
Ok I went back into the program and did it 2 ways: allocated all the qualified dividends to the beneficiaries and then allocated all of the qualified dividends to the trust. In both instances, the amounts on the K-1 forms were identical. So, clearly there must be a glitch in the program. Can you please try a hypothetical both ways to see if your K-1 changes? So you think it is because the IRS wants someone to pay taxes and if the trust has a negative taxable income it forces the beneficiaries to pay taxes?
@Oak_Fid_Agent wrote:
Can you please try a hypothetical both ways to see if your K-1 changes?
I have, in fact, tried it both ways and the program returns the correct result.
I'm not sure why you continue to refer to "allocating...qualified dividends" since, as been mentioned previously, the allocation of qualified dividends will follow the allocation of ordinary dividends. I'm really not sure what you're trying to accomplish at this point but I can't see your return nor do I have all of the figures you're using.
If you want to post all of the figures you're using in your return, I would absolutely be willing to input them into my test return.
Here are the values from the 1092 form
1. interest income 3665
2. ordinary dividends: 19,879
3. qualified dividends: 8397 to beneficiary and 3031 to trust (tried it both ways--0 to beneficiary and 100% to trust)
4.capital gain -3000
9 total income: 20,544
12. fees: 1918
14: fees 160
18: income distribution deduction 21,466
21 exemption 100
22 21,566
23 taxable income: -3100
Schedule B:
1. 18,466
2. 1,524
3. 0
6. 3000
7" DNI: 22,990
8. accounting income 22,990
10. other amounts paid 471,329
12. tax exempt 1,524
13, 471,329
14, 21,466
15, 21,466
there were 6 beneficiaries. distribution percentages: 4 were at 6.11%, one at 51.377 and the last at 24.15
If the allocation of "qualified" follows "ordinary how do I allocated "ordinary" to the trust vs. the beneficiaries?
You have DNI of $22,990 and I'm not sure why you're hung up on dividends here.
You could simply allocate circa $6,000 to the trust which would serve to reduce the tax liability of the beneficiaries while the trust's tax liability would be nil.
Exactly! but the million dollar question is how do I allocate it to the trust? That is the missing piece and once I figure it out I'll feel like a dope.
Do the math for the beneficiaries and only distribute, for example, $16,990.
Obviously, you'll have to split that figure to account for the difference in percentage allocations to the beneficiaries, but it should work perfectly (and it doesn't have to be exactly $6,000 that is retained by the trust).
BINGO. OMG here's the problem. In TT it asks for second tier distributions. It fails to say that this value should ONLY be from the DNI--instead, I and others likely included ALL distributions which of course force ALL dividends and interest to go to beneficiaries. I searched the online forum and saw a post about this from a few years back. TT should change wording to indicate ONLY include distributions from the DNI (interest and dividends) NOT trust corpus. I guess the IRS doesn't really care what is distributed from the trust corpus and there's no where on the 1041 to include that, which makes sense since it is not taxable income.