An important trustee responsibility is filing tax returns, and with that responsibility comes a duty to minimize income taxes. With a few weeks remaining in 2024, a trustee can still employ tax savings strategies. Fiduciary tax brackets are compressed. For 2024, trusts pay tax at the maximum income tax rate when taxable income exceeds $15,200. In addition, the same threshold applies to the additional 3.8% net investment income tax (NIIT). In comparison, a single individual taxpayer is subject to the highest tax rate at $609,350 of taxable income and the NIIT applies to modified adjusted gross income greater than $200,000.
Here are some strategies to consider:
- Pay deductible expenses before year end – taxes up to $10,000; fiduciary fees; attorney fees; accountant fees.
- Review investment holdings for any unrealized losses that could be liquidated before year-end to offset capital gains. A trust is permitted to deduct up to $3,000 of net capital losses in a tax year.
- Consider timing of any retirement plan distributions if it makes sense to accelerate income into 2024, especially for an inherited IRA subject to the 10-year rule.
- Distribute trust income to beneficiaries. Trustees can elect to treat distributions made within 65 days following the close of the tax year as being paid on the last day of that tax year.
- Confirm estimated tax payments have been made if you anticipate a fiduciary tax liability to mitigate underpayment of estimated tax penalties.
Corporate trustees have expertise in processing fiduciary income tax returns. If the services of a corporate trustee might benefit you, please contact Prairie Trust at (262) 522-7400 or email PrairieTrust@waukeshabank.com.