Look through the math on Schedule B and specifically at line 10, but work though all of schedule B very, very carefully to understand what the IRS deems as principle (you don’t decide)
Be careful, the requirement is that all the income (excluding capital gains) is deemed to be distributed before any principal
Let’s say there was $20k distributed to beneficiaries and the Trust has $15k of ordinary income and $5k of capital gains
Trust would pay taxes on the $5k; beneficiaries would pay the tax on the $15k and the last $5k would be the principle distribution (tax free) to them - so on this example beneficiaries get $20k but first $15k is the ordinary income realized by the trust and passed via the K-1
Thank you for the response.
I've included the total distribution amount from the trust (all from corpus/principal) on Schedule B Line 10. It is all from inheritance being passed via a trust set up prior to my parent's death. Schedule D shows the sale of 2 homes that had been put into the trust several years ago. No gains since I'm claiming a stepped-up basis or FMV at the time of the sale (both within almost 6 months of my parent's death). Reasonable for the market at the time. In addition, a POD to the trust was used on all bank accounts. The trust only had $16 in income from interest on the principal as it sat in a checking account in the name of trust. Therefore, the $16 is the only amount being passed on the beneficiaries K-1s.
Does this appear correct?
I may still have done this incorrectly from the start. Am I filing a 1041 for an Estate or a Trust?
My parent's bank account had PODs to the Trust and the 2 houses were already deeded to the Trust. The Trust became irrevocable at the time of my parent's death. Thus everything of value was in the Trust. However, I've had two people tell me its an Estate because of the deaths. And, TurboTax for Business doesn't allow you to check both "Decedent's estate" and "Complex Trust". I believe I'm filing a Complex Trust since I distributed principal and I didn't distribute everything in 2018.
It’s a trust return
The assets need to be distributed from the trust to the beneficiaries
The assets are not part of the estate... that was the whole point of putting the assets in the trust in the first place
Only the assets (if any) outside the trust aew controlled by the will and thus part of the estate