How to Calculate Gross Trust Accounting Income

The initial trust paperwork determines the annual distribution to the trust beneficiaries.

Trust funds are separate legal entities that are created to pass income on to a person or group. A trust is created by a deposit of assets into the fund. The person who deposits the assets is known as the grantor. The person who receives the trust distributions is know as the beneficiary. An independent person or company is in charge of managing the trust fund. This position is called the trustee. As a separate entity, a trust must report its accounting income and pay income taxes on investment gains not distributed to the beneficiaries.

Instructions

1. Review the initial paperwork that established the trust to determine its required annual distribution rate.

2. Review the investment performance of each investment in the trust fund. Calculate the net investment income of the trust by adding all investment gains and subtracting all losses.

3. Pay out the required distribution to the beneficiaries of the trust from its assets.

4. Subtract the total distributions from the investment income. If there is not an increase in trust assets after distributions and investment losses, the trust has no accounting income. If there has been an increase in assets, the trust must report income to the IRS.

5. Deduct the $600 income exemption from the trust's annual income. The remaining balance is the gross accounting income of the trust that must be reported to the IRS.

6. Report the gross accounting income of the trust to the IRS, and pay the income tax out of the trust's assets.

References

• "Fundamentals of Estate Planning"; Constance Fontaine; 2010
• Accounting and You: Trust Accounting Income
• The Money Alert: What is a Trust Fund