Natiro - please Trust/Expenses

[Gretel]

Natiro, I just confused myself over a little detail.

For example: Accounting fees, per state law to be alloacated 50/50 Principal/Income. Let's assume no tax-exempt interest.

I understand you can deduct administrative fees 100% on the 1041. What I don't understand (logically) is, why. Why 100% on 1041 if only 50% is allocated to income? Or do I have it wrong alltogether?

Thanks.
Gabriele

[Bees Knees]

TTB, page 21-7 “Trusts commonly have two types of beneficiaries. Income beneficiaries receive income earned on trust assets. Remainder beneficiaries receive trust assets when the trust ends. Accounting income determines the amount paid to income beneficiaries.”

So in other words, you don’t care about accounting income for tax purposes. You care about tax rules when you fill out the 1041. The accounting income only determines the amount of earnings a trust must pay out to the income beneficiaries. There is also a calculation involved with the income distribution deduction that is affected by accounting income. But other than that, don’t worry about accounting income rules. You use tax rules to determine what is tax deductible or taxable income.

[Gretel]

Thanks, Bees. I had all of this straight last year when I did the first return for client.

This year, all of a sudden, these weird questions pop in my head and make everything questionable.

I wonder, if others experience this too.

[JG EA]

I don't know must about trusts...

But this same thing happens to me all the time. I look back into last year's return and am amazed how much I knew then and don't have a clue about now.