I inherited some stocks and income from a trust in 2016. What do I need to report and where?

[jastroud]

My sister and I each inherited half of my Dad's trust, which had significant income last year. Do I need to report income from the trust? The distribution was on Dec. 28.

[RichardG · Accepted solution]

You should receive a Form K-1 from the trustee in the near future, and you will report the information on that form in TurboTax.  The entire amount distributed to you will probably not be taxable income to you, but some amount of the distributionswill likely be taxable income.  

The IRS explains it this way:

A trust or decedent's estate figures its gross income in much the same manner as an individual. Most deductions and credits allowed to individuals are also allowed to estates and trusts. However, there is one major distinction. A trust or decedent's estate is allowed an income distribution deduction for distributions to beneficiaries. To figure this deduction, the fiduciary must complete Schedule B. The income distribution deduction determines the amount of any distributions taxed to the beneficiaries.

For this reason, a trust or decedent's estate sometimes is referred to as a “pass-through” entity. The beneficiary, and not the trust or decedent's estate, pays income tax on his or her distributive share of income. Schedule K-1 (Form 1041) is used to notify the beneficiaries of the amounts to be included on their income tax returns.