Magazine article The CPA Journal

Estimated Taxes for Fiduciaries

Magazine article The CPA Journal

Estimated Taxes for Fiduciaries

Article excerpt

As a result of a law change in 1987, estates and trusts are required to make estimated tax payments in the same manner as individuals. Estates and grantor trusts that receive the residual of the grantor's estate are exempt for the first two years after the decedent's death.

One major difference is a special rule applicable to estates and trusts when computing the annualized installment. This special rule permits one additional month for the computation of estimated taxes. Therefore, estates and trusts have 45 days instead of 15 days to compute their estimated tax payments. The payment dates, however, are the same. Accordingly, estates and trusts would base their payments on the periods ending February 28, April 30, July 31, and November 30 instead of March 31, May 31, August 31, and December 31 as do individuals.

The trustee, in computing the annualized income of a simple trust, may take an income distribution deduction regardless of whether or not a distribution was actually made. The amount of the deduction may not exceed the distributable net income (DNI) for the months preceding the installment date. According to IRS Notice 87-32, the executor or the trustee of a complex trust may only take the deduction for the distributions actually paid or credited in the months preceding the installment date. A complex trust or estate will generally be required to pay estimated taxes on income that is neither required to be paid nor actually paid prior to the month in which the installment is due. The 65-day election may be utilized in computing the income distribution deduction. …

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