View PDF of Article in Tax News & Comment — October 2012

INCOME TAX PLANNING FOR NEW YORK TRUSTS

I.    Taxation of Resident Trusts

“Resident” New York trusts which are not “grantor”” trusts must pay New York State fiduciary income tax on all income and gains at rates which approach 9 percent for New York residents and 13 percent for New York City residents.
[Income earned by grantor trusts is taxed directly to the grantor at the grantor’s income tax rate. Most states, including New York, adopt the federal definition of what constitutes a grantor trust. The grantor trust rules reside in Sections 671 through 679 of the Internal Revenue Code. IRC Sections 164(a)(3) and 641(b) also provide that state income tax is deductible for federal income tax purposes, although the benefit of the deduction for capital gains, which are now taxed at only 15 percent at the federal level…