Question

Exercise 20-14 (LO. 1)

The entity reports the following transactions for the 2019 tax year. The trustee accumulates all accounting income for the year.

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)

Carryout the tax computations to two decimal places.

Compute the Federal income tax liability for the Valerio Trust by providing the following amounts:

The amount of the fiduciary's gross income taxed at 20% for the Valerio Trust is $30,000.
The fiduciary taxable income taxed at ordinary rates for the Valerio Trust is $484,900.

What is the Federal income tax liability for the Valerio Trust?

Answer 1

Ordinary income (operating income) = $500,000

Net passive loss (rental income) = $0

Personal exemption of a complex trust = $100

Deductible fees (fiduciary) = $15,000

Fiduciary taxable income taxed at ordinary rates = $500,000 - $100- $15,000 = $484,900

2019 income tax on $547,950 = $3075.5 + 37% of ($484,900 - $12,750) = $177,771

Tax on dividend income and net long-term capital gains of fiduciary is limited to 20%.

Tax on dividend income = $30,000 * 20% = $6,000

Total tax = $201,099.5 + $6,780 = $183,771

The Federal income tax liability for the Valerio Trust is $183,771.