Kim Trujillo has published an article, Unexpected tax bills for simple trusts after tax reform, published in the AICPA Tax Advisor (Sept. 1, 2019). The article begins as follows:
An overlooked impact of the 2017 tax reform act has resulted in many simple trusts’ having a tax liability on ordinary income, which was rarely the case prior to the act.
A simple trust, by the terms of its trust agreement, is required to distribute all of its income currently, cannot make charitable contributions, and does not distribute principal (Regs. Sec. 1.651(a)-1). Because any capital gains (or losses) reported on the fiduciary income tax return (Form 1041, U.S. Income Tax Return for Estates and Trusts) are taxed at the trust level as part of the principal of the trust, before the enactment of the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, trust income tax preparers were able to quickly verify if a return was prepared properly, using a shortcut of comparing taxable income against the net capital gains minus the trust’s $300 exemption. Changes brought about by the TCJA render this shortcut method null and void, and the common wisdom that simple trusts will not owe tax on ordinary income (such as dividends and interest) is not necessarily true any longer.
The heart of this issue lies in TCJA modifications to Sec. 67 eliminating (for tax years 2018 through 2025) deductibility of miscellaneous itemized deductions subject to the floor of 2% of adjusted gross income
See full article by clicking: Unexpected tax bills for simple trusts after tax reform
Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal..