A simple trust has the following receipts and expenditures for 2013. The trust instrument is silent with respect to capital gains, and state law concerning trust accounting income follows the Uniform Act. Assume the trustee's fee is charged equally to income and to principal.
Corporate bond interest .............................. $40,000
Tax-exempt interest ................................... 9,000
Long-term capital gain ............................... 5,000
Trustee's fee ........................................... 2,000
Distribution to beneficiary ........................... 48,000
a. What is the trust's taxable income under the formula approach of Figure 14-1?
In problem 14-1

b. What is the trust's tax liability?

Transcribed Image Text:

Tax on taxable income (using rates in Secs. as for individuals) Minus Te) Minus Deductions for expenses (interest, taxes, tax return preparation fees, trustee's fee, trade or business expenses, expenses related to production of income, depreciation, and charitable contributions Equals Net tax liability Minus Distribution deduction (maximum is Distributable Net Income [DNI] minus net tax-exempt income) Minus Exemption deduction Equals Taxable income