TurboTax Business: Complex Trusts and Required Income Distribution

[lshonnold]

If I understand complex trusts (and I am definitely NOT an expert), as trustee, I have complete discretion for distributing income, and principal which is according to my Grantor's wishes. 

TurboTax Business does not appear to allow for $0 required income distribution and $XXX Other amounts to be distributed. Do I not understand complex trusts or is there an issue with how TurboTax handles Complex Trust Income Distribution? I cannot get around the required income distribution functionality, so maybe I am missing something? I want the trust to pay the taxes after I make discretionary distribution, but Turbotax insists on paying out 100% income? Any help would be great!

I find: In a complex trust, trust income can be distributed to the beneficiaries, and the principal will stay within the trust until the trust expires, [...]  The ordinary income from the trust can be from various sources, including interest, dividends, rental income, royalties, and so on, and this income can be distributed to the beneficiaries or stay inside the trust and the trust will pay taxes on the income. The capital gains and losses will stay inside the trust until its expiration. The trust instrument will determine whether tax on distributions are payable by the trust or by the individual beneficiary.

[tagteam]

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@lshonnold wrote:
The ordinary income from the trust can be from various sources, including interest, dividends, rental income, royalties, and so on, and this income can be distributed to the beneficiaries or stay inside the trust and the trust will pay taxes on the income. 

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That is correct, except once the trust makes a distribution to a beneficiary, the distribution carries with it the income of the trust up to the amount of DNI (distributable net income). So, generally, the tax liability follows the income (i.e., if it remains within the trust, the trust will pay taxes on the income). 

[lshonnold]

Thanks much!

[lshonnold]

I do have one more question on this topic. I understand that the purpose of a K1 is to notify the beneficiary of the amount distributed for the year and their potential tax liability. My confusion is that I thought if I entered a $1000 distribution into TurboTax, I would receive an output for a K1 that stated $1000 distribution. Instead the K-1 state something slightly less like $925. Any thoughts on why?

[tagteam · Accepted solution]

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@lshonnold wrote:

...the purpose of a K1 is to notify the beneficiary of the amount distributed for the year and their potential tax liability. My confusion is that I thought if I entered a $1000 distribution into TurboTax, I would receive an output for a K1 that stated $1000 distribution. Instead the K-1 state something slightly less like $925. Any thoughts on why?

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The purpose of a K-1 is to pass items of income, gains, deductions, and/or credits through to the beneficiary(ies). 

If you actually distributed $1,000 but, for example, $75 represented corpus while $925 was interest income, then only $925 would appear on the K-1. Similarly, if the trust earned no income or gain whatsoever (i.e., had zero income of any kind), then if you prepared a return, the K-1(s) would be blank as there would be nothing to pass through (and, in fact, there would be no filing requirement even if you made a distribution of corpus).

[lshonnold]

Oh, got it!! That is exactly what happened! That makes complete sense now! Thanks tons for the education. Kind regards, lshonnold 

[CrazyEddie]

Sorry for the hijack, I can't find this answer anywhere.  Both 2019 and 2018 TT business duplicate one of my trust beneficiaries.  I have 4 beneficiaries, but one always gets duplicated to make 5.  If I delete the duplicate, when I come back the duplicate is still there and one of the other beneficiaries is gone and I need to put their info in again.  I have tried going into worksheets and forms to get rid of the duplicate, but it always comes back.  I have to make the duplicate entry have 0% of the trust income and distribution.  Obviously I am doing something wrong.  I used this in 2016 and 2017, no problem.  2018 and 2019 this problem began.

[tagteam]

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@CrazyEddie wrote:

I used this in 2016 and 2017, no problem.  2018 and 2019 this problem began.

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The issue could be caused by any number of things, including a corrupted tax file. You might want to contact Support (link below) and see if they can provide any additional assistance. However, if you have a relatively simple return (i.e., just trust, trustee, and beneficiary information to enter - no assets or carryovers), then you could be better off just starting a new return from scratch.

https://ttlc.intuit.com/community/using-turbotax/help/what-is-the-turbotax-phone-number/00/25632