Compute the Federal income tax liability for the Valerio Trust. The entity repor

Question

Compute the Federal income tax liability for the Valerio Trust. The entity reports the following transactions for the 2015 tax year. The trustee accumulates all accounting income for the year.

Carryout the tax computation to two decimal places and if required, round the final tax liability to the nearest dollar.

The fiduciary income taxed at a nominal rate of 20% for the Valerio Trust is $ ?

The fiduciary taxable income taxed at ordinary rates for the Valerio Trust is $ ?

The Federal income tax liability for the Valerio Trust is $ ?

Operating income from a business $500,000 Dividend income, all from U.S. corporations 30,000 Interest income, City of San Antonio bonds 40,000 Fiduciary fees, deductible portion (15,000) Net rental losses, passive activity (100,000)

Explanation / Answer

Part A)

The fiduciary income taxed at a nominal rate of 20% for the Valerio Trust is equal to the dividend income for the Year, which is equal to $30,000. This is as per the provisions of "Estimated Income Tax for Estates and Trusts" for the year 2015.

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Part B)

The fiduciary taxable income taxed at ordinary rates for the Valerio Trust has been calculated as follows:

Notes:

1) Net rental losses, passive activity can be set off only against the passive income. Since, there is no passive income, the amount of loss can be carried forward and no adjustment will be made this year.

2) Interest income is a not a part of fiduciary taxable income.

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Part C)

The Federal income tax liability for the Valerio Trust has been calculated as follows:

Tax at Nominal Rate = 30,000*20% = $6,000

+

Tax at Ordinary Rates = 3,179.50 + (484,900 - 12,301)*39.6% = $190,328.70 [as per the tax provisions for 2015]

Total Federal Income Tax Liability for the Valerio Trust = 6,000 + 190,328.70 = $196,329

Ordinary Income 500,000 Net Passive Loss 0 Less Personal Exemption for a Complex Trust 100 Fudiciary Fees 15,000 Fudiciary Income Taxable at Ordinary Rates $484,900

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