topic How do I allocate tax-exempt trust income to the trust corpus? in Business & farm

How do I allocate tax-exempt trust income to the trust corpus?

TN143 — Mon, 01 Mar 2021 22:04:11 GMT

The trust is a complex trust giving the ability to the trustee to distribute the income and capital however she prefers. The trust distributed $63,830.83 of the $67,306 income + capital gains, of which $19,400 was tax-exempt income and approx. $16,000 was long-term capital gains. Turbo-tax is trying to say the trust owes $2361 in taxes, but the tax-exempt income should have been distributed to the beneficiaries last. How can I do this in TurboTax?

Re: How do I allocate tax-exempt trust income to the trust corpus?

Anonymous_ — Mon, 01 Mar 2021 23:23:17 GMT

Are you certain you allocated the capital gains to the beneficiaries and to income before you made the distribution?

Re: How do I allocate tax-exempt trust income to the trust corpus?

TN143 — Mon, 01 Mar 2021 23:58:50 GMT

There weren’t that many places that allowed me to say how to allocate capital gains, but the place where it looked like I could do that, it only allowed me to attribute short term capital gains to beneficiary income, which was $5. The long-term was $16,000.

Re: How do I allocate tax-exempt trust income to the trust corpus?

Anonymous_ — Tue, 02 Mar 2021 02:22:10 GMT

You should have come across a screen in Step-by-Step where you would indicate if you wanted to allocate long-term capital gains to the beneficiaries.

Referring to the screenshot below, you can enter Forms Mode and shift the gains from the estate's or trust's column to the beneficiaries column simply by entering the figure in the latter column.

Re: How do I allocate tax-exempt trust income to the trust corpus?

TN143 — Tue, 02 Mar 2021 16:14:31 GMT

Thank you! Your post initiated me to be able to find my answer, which really required checking the impact of a few changes. I ultimately did an override on the default of tax-exempt income allocated to the schedule K-1. Thank you again!