If you are the executor of an estate or the trustee of a trust, you should know that egregiously high income tax rates apply to estates and trusts at very low levels of income. In 2017, for estates and trusts, the 39.6% income tax rate as well as the 3.8% Net Investment Income (NII) tax kicks in at $12,500 of income. That\u2019s not very high. And don\u2019t forget, you don\u2019t need $12,500 of investment income to pay the NII tax. If the total income exceeds the $12,500 threshold, the NII tax might be due on all of the investment income. For example, let\u2019s say an estate has income of $212,500. The tax on the $200,000 (income in excess of the $12,500 threshold), at 43.4% equals a tax of $86,800. Ouch!<\/p>\n
\u00a0<\/strong><\/p>\n Help! Is there any hope?<\/strong><\/span><\/p>\n Yes, the estate and trust only pays tax on what\u2019s not distributed. Distributions lower the income tax for the trust and at the same time increase the recipient\u2019s personal income tax. However, individuals do not pay the highest rates unless they are wealthy. In our example, if there are four beneficiaries and each receives $50,000 (one-fourth of the $200,000) many individuals will only pay 15% on that $50,000. That\u2019s $7,500 per beneficiary for a total of $30,000 instead of $86,800 for a tax savings of $56,800.<\/p>\n <\/p>\n Is there anything I can do?<\/strong><\/span><\/p>\n It\u2019s not too late. There\u2019s a rule allowing distributions made in the first 65 days of the next year to be treated as if made in the preceding year. A special election must be made on the Fiduciary Income Tax Return. This year\u2019s deadline is \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0March 6, 2018<\/strong><\/span>. Executors and trustees should act soon to take advantage of this opportunity for substantial tax savings.<\/p>\n <\/p>\n Please contact us for assistance with making distributions or any other tax related questions about managing a trust or estate.<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Trustees and executors can still reduce 2017 trust and estate income taxes. Must act before March 5, 2018<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6,11],"tags":[82],"class_list":{"0":"post-3167","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-estate-trusts-guardianships","7":"category-income-taxes","8":"tag-estate-taxes","9":"entry"},"_links":{"self":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/3167","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=3167"}],"version-history":[{"count":0,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/3167\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=3167"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=3167"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=3167"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}