New 2024 US Tax Rule: Distributable Net Income (DNI) Limits for Trusts and Estates
Trusts and estates in the USA will have a new tax rule in 2024. Distributable Net Income (DNI), similar to TurboTax's calculation, will limit the amount of income that can be passed through to beneficiaries for tax purposes, preventing double taxation.
DNI is calculated as Taxable Income minus Capital Gains, plus a Tax Exemption. It excludes capital gains and losses, ensuring these are not taxed twice. Trusts and estates can deduct DNI or required distributed income, whichever is less, to avoid this issue.
Trusts have two ways to report income. If income is allocated to distributable income and distributed to beneficiaries, it's taxed at the beneficiary level. If it's allocated to the principal amount or not distributed, it's taxed at the entity level. Estates and non-grantor trusts must file income tax returns, with income taxed at either the entity or beneficiary level.
DNI plays a crucial role in trust taxation, providing beneficiaries with a reliable income source while minimizing trust income taxes. It helps minimize double taxation by guiding how trusts and beneficiaries report taxes in the USA from 2024 onwards.
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