Question

A nongrantor trust received income in the following amounts: $3,000 in qualified dividends. $2,000 in taxable interest. $1,000 in tax-exempt interest. the only expenses were $1,000 in fiduciary fees. what portion of the fiduciary fees are deductible?

O $333
O $500
O $833
O $1,000

Answer 1

Approximately $833 of the fiduciary fees are deductible for the nongrantor trust, calculated based on the ratio of taxable income to the total income.

Step-by-step explanation:

To determine the deductible portion of fiduciary fees in a nongrantor trust, one must allocate the fees between the tax-exempt and the taxable income.

The trust received $3,000 in qualified dividends, $2,000 in taxable interest, and $1,000 in tax-exempt interest, resulting in a total income of $6,000 that is subject to taxation (excluding the tax-exempt interest).

The fiduciary fees amounted to $1,000. To calculate the deductible portion of the fees, we allocate the fees based on the ratio of the taxable income to the total income. Thus, the deductible expenses are determined by the following formula: ($3,000 + $2,000) / ($3,000 + $2,000 + $1,000) * $1,000 = $5,000 / $6,000 * $1,000 = $833.33, which is approximately $833. Therefore, $833 of the fiduciary fees are deductible.