CPA Firm Tax Tip
Recently I ran into a mess when our CPA firm was called to assist with a trust issue. It was in regards to a decedents grantor trust. The beneficiaries of the trust were mostly minor children and according to the trust document beneficiary were not to receives distributions from the trust until they reach the age of 30.
Because the trust is not currently distributing income, most of tax is being paid at the trust level. Federal trust tax rates hit the maximum when income is slightly over $10,000. We individual tax rates ramp up a lot slower.
The biggest issue was not the dividends and interest itself but a rather sizable traditional IRA that the trust was the beneficiary of. So at first look it appeared that the trust was going to have a large tax burden as a result of this traditional IRA. There simply were not any beneficiaries to pass the income to.
As our CPA firm dug into the story problem I eventually found a solution that would reduce the tax liability. As luck would have it the decedent was over the age of 70 1/2 and receiving required minimum distributions (RMD) from the IRA. It was because of this that we were have to roll the IRA over to the trust using the stretch option. The stretch IRA will be distributed using the life expectancy of the oldest trust beneficiary. This mean that annual distributions will never hit the highest trust tax rate, because the annual distribution will be well under $10,000 per years.
So we wait for our answers. #taxesarehard
Tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used for the purpose of (i) avoiding tax related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.
CPA Firm Tax Tip Recently I ran into a mess when our CPA firm was called to assist with a trust issue. It was in regards to a decedents grantor trust. The beneficiaries of the trust were mostly minor children and according to...