Does the Trust pay income tax on its earnings?
Because the Trust is a separate taxpayer, it will ordinarily pay tax on income earned that is retained in the Trust. If all of the income is distributed to the beneficiaries annually, the Trust may pay no federal income tax. Rather, the income may be taxed to the individual beneficiary or beneficiaries receiving the income. Certain states also require that Trusts administered in their jurisdiction also file a state income tax return.
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