Doing K-1 after trust distributions

[greenCap]

I am getting close to doing our family's trust 1041 using TT, but figuring out the K-1 will be the hard part.
If we begin a monthly distribution during 2021, then can we make the decisions/determinations about whether the money was principal or interest or capital gains or whatever in early 2022 as we do the 1041 and K-1s for 2022.  Is that a reasonable plan, or must we make all the determination before distribution, even though they won't be reported till the next tax season?
thanks

[tagteam]

You need to have authority (i.e., discretion), as trustee, to distribute capital gains and principal to the beneficiaries.

Assuming you have the authority, as granted in the trust instrument, then the property you distribute via K-1s carries with it DNI (distributable net income). 

You can make an election (a 663(b) election) that allows you to treat distributions made to beneficiaries within 65 days of year-end to be counted as prior-year distributions. Thus, you could wait and make your 2021 distributions after December 31, 2021, but before circa March 16, 2022.

Unless you understand each and every aspect of the foregoing, as well as basic trust accounting, you should seek professional guidance with respect to this matter.

[greenCap]

We may have to stick with professionals for now. Any advice for a good book about the trust tax and distributions (Wisconsin)?

[tagteam · Accepted solution]

Below are a couple of general links with which to start and one for Wisconsin.

https://www.fidelity.com/viewpoints/wealth-management/insights/trusts-and-taxes

https://competency.aicpa.org/media_resources/211059-trusts-and-estates-uses-and-tax-considerations/d...

http://wilawlibrary.gov/topics/estate/wills.php#faq

If you can initially employ a professional, that would go a long way toward your understanding of the issues involved and, eventually, you should feel more comfortable doing it yourself (provided the scenario is not overly complex).