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Level 1

Trust Taxes - TurboTax Business

This is a follow up question to one I posted earlier about distributions from a complex trust.  


Here is the question:  

As I put information into TurboTax business I noticed something that seems contrary to Trust Law.


I am paying the tax for the long term capital gain distribution in the Trust (as required).  After the trust pays the tax I want to distribute the LTCG distribution income to myself as the beneficiary.  The K1 generated by TurboTax correctly shows interest and dividend distribution with taxes to be paid on my 1040.  But it does not show the LTCG distribution at all.


My understanding of Trust Law says that all distributions (taxable or non taxable) must be reported to me as the beneficiary and to the IRS on the K1.  


How can I get the distribution of funds on which no tax is owed to show up on the K1?


Here is where you can find background to the question if you need it:

2 Replies
Level 15

Trust Taxes - TurboTax Business

It is a bit unclear as to your exact understanding of "trust law" and the issue presented, but once you have reduced property to cash you are typically just distributing corpus (principal of the trust) and, technically, distributions of corpus do not have to be reported (and actually do not even create a filing requirement).


However, if you do not have the authority or discretion in the trust instrument to distribute long term capital gains, then those gains remain within the trust (i.e., they are considered to be corpus).



Level 1

Trust Taxes - TurboTax Business

I would be delighted if your interpretation is true.  

This is what I am basing my understanding on.

Taxation on Continued Trust Holdings

In the event that a trust does not immediately disburse all of its assets to the named beneficiary or beneficiaries, the trustee will be required to complete IRS Form 1041 on an annual basis until all assets have been properly dispersed. This means that any interest income generated by the trust will be subject to taxation on an annual basis.

When a trust does make a disbursement to a beneficiary, each of these transactions must be logged for the IRS using Form K-1. This particular document allows the trustee to itemize any and all disbursements made to beneficiaries throughout the tax year, documenting the total sum of the disbursement and the specific percentage of the disbursement that was composed of principal/interest. After receiving the income, the beneficiary will then be required to document the receipt of the disbursement on their own tax return, regardless of whether or not the funds in question represented principal or interest. Failure to do so could result in a variety of logistical hurdles after filing the tax return.


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