Tax reporting liquidating trust
Minimize the Medicare surtax Distribute to beneficiaries who are in low income tax brackets.
This will allow the income to be taxed at the beneficiaries’ lower rates, rather than at the estate’s or trust’s rate, which is 39.6% once the ,950 threshold is reached. An estate or trust may elect to treat amounts paid or credited in the first 65 days of the tax year as if they were paid or credited on the last day of the prior tax year. Before making distributions to minimize income taxes, make sure to consider other factors.
It is not sufficient to indicate the fiscal year when extending the due date for the Form 1041 or when applying for the estate’s Employer Identification Number (EIN).
If appreciated assets of the estate or trust are distributed in-kind to the beneficiaries, consider making an election to recognize the gain at the estate or trust level.
Whether you are a fiduciary or beneficiary of an estate or trust, or one of their advisors, you should take note of some of the more important changes under the new income tax laws, as well as strategies that can be employed to minimize the tax.
For some of those strategies to be effective, action must be taken right away.
Fiduciaries, in particular, should be familiar with these strategies and deadlines.
The election also is not desirable if the beneficiary plans to hold the asset for a long time before selling it, because the recognition of gain may be deferred until the sale.
As you can see, there are a number of techniques that can be used to minimize income taxes under the new tax laws.
For distributions to beneficiaries between January 1, 2013 and March 6, 2013, the election may allow the distributions to be taxed to the beneficiaries at the lower 2012 rates and to escape the Medicare surtax. The fiduciary should weigh the potential income tax savings against the possible disadvantages of distributions, such as exposing the distributed assets to the beneficiaries’ creditors or to their spouses in the event of divorce.