Is there a way to include distribution of principle on the beneficiary K-1 while still having the Trust pay the income tax?

[Jim01]

TurboTax Business will not allow the Trust to pay the income tax if I enter a distribution of principle ($0 Tier 1, some amount Tier 2) to beneficiaries. If I enter any amount in the Tier 2 distributions, TurboTax automatically flows the Trust income tax to the beneficiaries.   (As a side note it correctly shows the Tier 2 distribution as non-taxable.)  If I override the distribution percentage between the Trust and beneficiaries (100% trust, 0% beneficiaries) TurboTax does not flow the tax on income to the Trust. I am trying to do this as it is my understanding that distributions of principle are to be included on the beneficiary K-1.  Beneficiaries have already filed taxes and it is a small income amount, so I want the Trust to pay the income tax rather than have everyone file an amendment.

[tagteam · Accepted solution]

The program is handling the scenario correctly, since distributions carry through DNI (distributable net income) through to the beneficiaries. On the other hand, distributions of principal (corpus or trust assets) are not shown on K-1s.

If you absolutely want the trust to pay the tax on the income and it is a small amount, then you will have to indicate that distributions were not made (the trust will wind up paying the tax and, frankly, no one will have a problem with that considering the compressed tax rates that apply to trusts and estates).