1041 not calculating tax owed correctly

Forum|Forum|1 year ago
March 28, 2025
2 replies
11 views

I have two virtually identical 1041 tax returns. Both are "complex trusts" Both are small trust, with very little dividend income, but the income was not distributed or paid out to the named beneficiaries. So, the dividend and interest income are taxable at trust level. There is no distribution deduction. I have entered the beneficiary information for the single beneficiary for each separate trust.

Yesterday, for what I will call Trust A, there is $1,023 of income, there is a $100 exemption amount on line 21. LIne 23 has taxable income of $923, and line 24 has total tax of $27.

Today I am completing another Form 1041 for another client, call this one Trust B. Everything is essentially the same in all parameters. this one has $854 of income, a $100 exemption, and $754 of taxable income on line 23. Line 24, total tax is zero. How can the total tax be zero on this line. I cannot for the life of me figure out what is wrong here? Or what I have inadverently entered differently. Help.

ProSeries Professional

Best answer by sjrcpa

Qualified dividends being taxed at a lower rate, which could be -0-

sjrcpaAnswer

Level 15

Qualified dividends being taxed at a lower rate, which could be -0-

The more I know the more I don’t know.

J

JeffCPAAuthor

Level 5

That is exactly it. Has to be. The 1041 that is showing zero income tax owed, is essentially all qualified dividends so they are being taxed at lowest rate, and in this case because income is so low, that rate is zero percent.

I also went back to other 1041, and subtracted out the qualified dividends and did the math for tax on remaining balance and it adds up exactly as it should. Thanks very much for your prompt and effective reply. Appreciate it.

L

Lori12

Level 2

I have a return with a complex trust that doesn't seem to be calculating the tax correctly. Most of the income is dividends, which I believe should be taxed at ordinary rates with the first 3100 at 0%, then the next tier at 24%. However, the return is using schedule G on schedule D to calculate the tax in a very convoluted way, but seems to be using 0%, 15% and 20% (LT cap gains tax rates on trusts). I have tried every which way to come up with the tax amount. Any insight you or anyone else could provide would be greatly appreciated!

L

Lori12

Level 2

One thing I learned for a complex trust tax return I was analyzing yesterday is that the ordinary income is taxed first using the trust brackets for ordinary income. Then, to the degree the 3,250 is not "used up" in ordinary income, the preferential income is taxed at zero (up to 3,250), then 15%, etc. (using the preferential complex trust tax brackets). This took me 2 calls with Intuit ProConnect, 1 call with the IRS, then figuring it out myself. I also learned yesterday that there are no longer any tax professionals at the IRS preparer phone line!

sjrcpa

Level 15

Going through the tax computation worksheet manually would have saved you those calls.

The more I know the more I don’t know.

L

Lori12

Level 2

Thanks. I went through the mechanics, but the worksheet does not explain what the calc is doing. It is very convoluted.

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