Analyzing Your Client's Financial Profile - Corporate and Trust Income Tax

Corporate Income Taxes
Corporations get a tax break for investing in common and preferred stocks (of companies other than their own).

  • There is a dividend exclusion of 70% that applies to corporations that own less than 20% of the other company.
     
  • If the company owns more than 20%, the dividend exclusion is 80%.
     
  • Since there is no corporate tax break on bond interest (for corporate or government bonds), there is no incentive for corporations to purchase these.
     
  • Of course, municipal bond interest is not taxable to the corporation (unless it is a private-purpose bond, which would be taxable to an individual as well).

Trust Income Taxes
The income tax rate that applies to a trust depends on what type of trust it is:

  • Revocable trusts- these trusts manage assets that the owner ("grantor") has placed in the trust during his or her own lifetime.
    • The grantor has the right to change or terminate the trust at any time and can serve as the trustee of the trust.
       
    • The trust becomes irrevocable upon the grantor's death.
       
    • Revocable trusts are taxed at the grantor's personal income tax rate - currently a maximum of 39.6%.
       
  • Irrevocable trusts- these trusts may be created during the grantor's lifetime or may be contained within a will and become active only upon their death.
    • Irrevocable trusts are taxed at special trust income tax rates.
Estate and Gift Taxes


Related Articles
  1. Retirement

    Estate Planning: Introduction To Trusts

    by Cathy Pareto, CFP®, AIF® (Contact Author | Biography) A trust is an agreement that describes how assets will be managed and held for the benefit of another person. There are many ...
  2. Retirement

    Pick The Perfect Trust

    Trusts are an estate plan's anchor, but the terminology can be confusing. We cut through the clutter.
  3. Retirement

    Surprising Ways a Trust Could Help Your Family

    Everything you always wanted to know about setting up trusts, in handy glossary form.
  4. Savings

    How To Set Up A Trust Fund If You’re Not Rich

    Contrary to popular opinion, trust funds are not just for the rich. Middle class citizens can set them up, as well.
  5. Personal Finance

    What's an Irrevocable Trust?

    In an irrevocable trust, the grantor gives up the right to revise, amend or terminate the trust without the permission of the beneficiary. An irrevocable trust is best used as an estate-planning ...
  6. Retirement

    Estate Planning: Marital And Non-Marital Trusts

    by Cathy Pareto, CFP®, AIF® (Contact Author | Biography) Before we begin talking about these types of trusts, let's first begin by introducing the term "unlimited marital deduction." ...
  7. Retirement

    How To Set Up A Trust Fund In Australia

    No, they're not just for the super-rich. But you need to know the rules.
  8. Mutual Funds & ETFs

    An Introduction To Exchange-Traded Grantor Trusts

    These funds offer a very hands-off experience for the low-involvement investor.
  9. Taxes

    Tax-Efficient Wealth Transfer

    Taxpayers with large taxable estates were required to take steps to reduce them before 2011.
  10. Retirement

    How to Set Up a Trust Fund in Canada

    You don't have to be rich to make use of a trust fund. Rules can be complex; here's what you'll need to discuss with your lawyer.
RELATED TERMS
  1. Grantor Trust Rules

    Guidelines that state a trust is considered to be a grantor trust ...
  2. Revocable Trust

    A trust whereby provisions can be altered or canceled dependent ...
  3. Grantor Retained Annuity Trust ...

    An estate planning technique that minimizes the tax liability ...
  4. Rabbi Trust

    A trust created for the purpose of supporting the non-qualified ...
  5. Clifford Trust

    Clifford Trusts allow grantors to transfer assets that produce ...
  6. Dynasty Trust

    Long-term trusts created to pass wealth from generation to generation ...
RELATED FAQS
  1. What happens when a will and a revocable trust conflict?

    Learn why a revocable trust supersedes a will, but only for the assets held in the trust, when there is a conflict between ... Read Answer >>
  2. What are the differences between a revocable trust and a will?

    Investigate the choice between a revocable trust and a traditional will and how their unique advantages can match asset management ... Read Answer >>
  3. How does a revocable trust become a split-interest trust?

    Learn how a revocable trust becomes a split-interest trust upon the death of the of the grantor when there are both charitable ... Read Answer >>
  4. What is the difference between revocable and irrevocable intervivos trusts?

    Learn what an inter-vivos trust is, the difference between an irrevocable and a revocable inter-vivos trust, and why it is ... Read Answer >>
  5. Can trust funds be activated before the grantor intended?

    Trust law gives the grantor specific rights over the release of assets and therefore it is not possible to change the stipulations ... Read Answer >>
  6. What kinds of assets can be included in a revocable trust?

    Understand what types of assets can be included in a revocable trust, and why some asset types are excluded from this estate ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center