We are now dotting the i’s and crossing the t’s on the 2013 fiduciary income tax upgrade. All state fiduciary income tax form approvals are in, and we are completing work on the newForm 8949, Sales and Other Dispositions of Capital Assets.
This morning we spoke with a representative of the IRS regarding the new Form 8960, Net Investment Income Tax. The representative clarified several issues that were not clear from the form, the instructions, or the 122 pages of Final Regulations published on 12/16/2013. This 3.8% additional tax applies to “net investment income” (interest, dividends, annuity distributions, rents, royalties, income from passive activity, and most capital gains). It does not apply to salary, wages, bonuses, distributions from IRAs or qualified plans, and several other items. Although this subject is quite complex, this tax applies to net investment income only to the extent that the estate/trust AGI (as calculated for Line 15c purposes) exceeds $11,950 for 2013 returns. Thus, in simplest terms, you could have $12,000 of net investment income, but only $50 (the portion over $11,950) would be subject to the tax.
Some income that is “trapped” in an estate can be taxed at 43.4% (39.6% for the portion over $11,950, plus 3.8% on net investment income to the extent that is in the 39.6% zone).
Important note: Under some circumstances, estates or trusts will want to consider making discretionary distributions to beneficiaries on or before March 6, 2014. Such distributions can be treated as made in 2013, thus shifting taxable income from the 43.4% combined rate to lower beneficiary rates of 0%, 15%, etc. This planning tool has become even more important this year because the difference between the top and bottom rates has now been magnified. Make this election by checking the box on Line 6 under Other Information on Page 2 of the 1041.
The upgrade will include an enhanced “Tax Chart” and a new “Visual Tax Table” that provides a colorized picture of the regular tax calculation, the max tax calculation (involving the 0%, 15%, 20%, 25%, and 28% rates applicable to various capital gains at various bracket levels), and the new net investment income tax. Click on “Visual Tax Table” in the list above for an example.
We will post further information here as we get closer to releasing the software within the next day or so.