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5. A simple trust has ordinary gross income of $20,000 and $10,000 of capital gains, which...

5. A simple trust has ordinary gross income of $20,000 and $10,000 of capital gains, which are allocable to corpus. Its only deductible item is a trustee's commission of $5,000, allocable to corpus under the trust instrument. a. How much is the trust's accounting income? b. How much is the DNI that will be taxable to the beneficiary? c. How much will the trust pay tax on?

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Answer #1
Answer
(a)
Accounting Income = Gross Income + Capital Income - Trust Expenses
AI=20000+10000-5000
AI= $ 25000
(b)
Distributable Net Income (DNI)= Taxable Income - Capital Income + Tax Exemtion
DNI= Gross Income-commission exp.
DNI= 20000-5000
DNI=$ 15000
C) Taxes (*As applicable rate is $3,011.50 plus 37% of the excess over $12,500)
Tax payable by Trust = (3011.50 + (37%*(25000-12500))
7636.5
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