Irrevocable trust distributions

[tlavita]

Here's my situation.  My father passed away and had listed his trust as the beneficiary on his IRA. The ira paid out the balance to his trust and they withheld taxes for state and federal. They reported this info on a 1099R.  I prepared the trust return with turbo tax.  I indicated on the K-1 the net amount after taxes were withheld from the IRA to the beneficiary.  Is this net amount still considered income on her personal tax return?  Asking in business and farm section since the return is prepared in turbo tax business. 

[M-MTax]

IRA distributions are taxable. Having the trust designated as a beneficiary is not a great idea but it's too late now so the income gets passed through on the K-1.

[ThomasM125]

Typically the way it works is the trust will pay tax on income reported in the name of the trust, but you can deduct distributions to trust beneficiaries from that income. So, if you distribute the income to the beneficiary, that income will be deducted by the trust and entered as taxable income on the personal tax return of the beneficiary.

Often, it is a good idea to pay the income to the beneficiary, as the beneficiary's personal tax rates are often lower than the trust tax rates.

In either case, the income only gets taxed once, either on the trust tax return or the beneficiary's tax return.

[Mike9241]

this sounds like a complex trust. under IRC 663(b)(2) 

If within the first 65 days of any taxable year of an estate or a trust, an amount is properly paid or credited, such amount shall be considered paid or credited on the last day of the preceding taxable year.

so to get a deduction for distribution to beneficiaries the trust had to make an actual distribution (cash or property) either during the tax current tax year or within the first 65 days of the next year.  failure results in no deduction.