1. The Bellow Trust has the following activities during Year 2. Dividend Income

Question

1. The Bellow Trust has the following activities during Year 2. Dividend Income Tax-Exempt Interest Income Recognized Long-Term Capital Gain, allocated by the trust $100,000 15,000 25,000 agreement to income beneficiaries Fiduciary's Fees Contribution to Mt. Olive Church, paid on 8-30-Year3 from Year 2 trust accounting income, as authorized by the trust agreement Deduction for Discretionary Beneficiary Distributions (assumed)98,214 20,000 The trustee could, at her discretion, distribute any amount of the B Trust income or corpus during the term of the trust. Compute Bellow's taxable income.

Explanation / Answer

Particulars Totals Accounting Income Taxable Income Dividend Income          100,000          100,000         100,000 Tax exempt Interest Income            15,000            15,000 Fiduciary's Fees            10,000 (8,696) Contribution to Mt. Olive Church            20,000         (20,000) Bellow's Taxable Income            71,304 1. Long term Capital gain allocated to income beneficiaries will be taxable in the hands of beneficiaries and not under trust. 2. Fiduciary Fees for tax exempt interest income is not deductible from taxable income Fiduciary fees for non taxable income = Fiduciary's Fees x Tax exempt income/accounting income = 10000 x (15000/115000) =1304 Fiduciary's fees for taxable income = $10000 - $1304 = $8696 3. Deduction for Discretionary Beneficiary Distributions is assumed not actual, thus not considered in taxable income

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