K-1 (Form 1041) How to determine amount of interest or dividends that are exempt from State income tax?

[Thank_You]

What is the name of your state? New York

If a beneficiary receives income from an irrevocable trust, and knows that some of the interest and dividends reported to them on the K-1 (Form 1041) is from US Treasury securities and is exempt from income tax in their state, how do they know how much of the interest or dividends is exempt? The K-1 form doesn't seem to show this.

 

[davew9128]

Ask the person(s) who prepared said K-1.

 

[Thank_You]

Ask the person(s) who prepared said K-1.

The problem is that it's not so much about me as it is about other beneficiaries who will be getting K-1s. I am the trustee of the trusts that are issuing the K-1s. I can't expect them to just take my word for it if I tell them how much is state tax exempt. I would not be satisfied with that.

After the 2023 returns are completed and the CPA sends them to me I will ask him this question. But I always like to be prepared before I have a discussion with him in case I am not satisfied with his answer. So I am hoping someone else knows the answer.

 

[davew9128]

The problem is that it's not so much about me as it is about other beneficiaries who will be getting K-1s. I am the trustee of the trusts that are issuing the K-1s. I can't expect them to just take my word for it if I tell them how much is state tax exempt. I would not be satisfied with that.

If you have a CPA preparing these K1-s, why aren't you asking THEM this question? Because as a tax professional, if I were preparing the return and I had that information available, it would be disclosed appropriately. Because, you know, professional.

It sounds to me like you've never done this before...

 

[LdiJ]

The problem is that it's not so much about me as it is about other beneficiaries who will be getting K-1s. I am the trustee of the trusts that are issuing the K-1s. I can't expect them to just take my word for it if I tell them how much is state tax exempt. I would not be satisfied with that.

After the 2023 returns are completed and the CPA sends them to me I will ask him this question. But I always like to be prepared before I have a discussion with him in case I am not satisfied with his answer. So I am hoping someone else knows the answer.

As Dave discussed, who is preparing the K1s? If that information is known, it should be part of the disclosure attachments that are sent with the K1, and yes, the recipients are permitted to rely on those disclosures. Where else do you think that information is supposed to come from? If the CPA doesn't know the information and you do, then you need to provide it to the CPA.

 

[Taxing Matters]

What is the name of your state? New York

If a beneficiary receives income from an irrevocable trust, and knows that some of the interest and dividends reported to them on the K-1 (Form 1041) is from US Treasury securities and is exempt from income tax in their state, how do they know how much of the interest or dividends is exempt? The K-1 form doesn't seem to show this.

Typically what the issuer of the K-1 will do is include an separate page it creates that identifies income that is, or that may be, tax exempt, either on the federal income tax return or the state return, if issuer has sufficient knowledge to sort out what is taxable what is not. . If you rely on that information that the issuer included with the K-1 you may generally rely on that unless you had some reason to know there may be errors on the K-1. If the IRS audits either your return or the trust return and determines that income that the trust treated as non exempt is instead taxable income, you'd end up getting an addition to income for the year and the tax would be recomputed base the new income amount. You'd have interest to pay, too, though the IRS interest rates are not very high compared to what some lenders would charge you.

As the trustee of the trust, you will want to determine what is taxable income and what is not to the best of your ability and provide it with the return if the return doesn't have a line item for it. If you aren't sure about that status of some part of the income the trust received then a visit to a tax professional would be a good idea. The fee for that should be payable by the trust.

 

[Thank_You]

As I mentioned, I have a CPA. I also have an attorney. But I like to verify everything they tell me from other sources as I have found from many years of dealing with both CPAs and attorneys, their answers are not always correct.

In this case I figured out the answer myself after I posted this question, so thank you for the responses, and this one is resolved.

 

[Zigner]

In this case I figured out the answer myself after I posted this question, so thank you for the responses, and this one is resolved.

It might help others if you shared the answer

 

[Thank_You]

Frankly, some here with their obnoxious comments who have nothing useful to offer and only add baseless criticism don't deserve the information.

But for those who do...

IT-205 Fiduciary Income Tax Return is the NY state return filed with the 1041 federal return. It has pages that show each beneficiary's share of the NY state adjustments to the federal K-1 numbers.

 

[LdiJ]

Frankly, some here with their obnoxious comments who have nothing useful to offer and only add baseless criticism don't deserve the information.

But for those who do...

IT-205 Fiduciary Income Tax Return is the NY state return filed with the 1041 federal return. It has pages that show each beneficiary's share of the NY state adjustments to the federal K-1 numbers.

Yes, those are exactly the types of disclosure statements that often accompany a K1.

 

[davew9128]

Frankly, some here with their obnoxious comments who have nothing useful to offer and only add baseless criticism don't deserve the information.

But for those who do...

IT-205 Fiduciary Income Tax Return is the NY state return filed with the 1041 federal return. It has pages that show each beneficiary's share of the NY state adjustments to the federal K-1 numbers.

And for those of us in the profession who do this for a living and already told you the answer...

 

[Zigner]

Frankly, some here with their obnoxious comments who have nothing useful to offer and only add baseless criticism don't deserve the information.

There were no "obnoxious comments" nor was there any "baseless criticism."
You read something into the comments that simply wasn't there.