Instructions For Estates And Trusts Income Tax Return (Form D-407a)

Page 2, D-407A, Web, 11-14

Line 18. Your election to contribute to the Fund cannot be changed after you file

the income retains its same character as when received by the estate or trust.

your return. If you are not due a refund, you may still contribute to this Fund by

The additions and deductions to federal taxable income of an estate or trust must

donating online or mailing your donation directly to the North Carolina Wildlife

be apportioned between the estate or trust and the beneficiaries based on the

Resources Commission, 1702 Mail Service Center, Raleigh, North Carolina

distributions of income made during the taxable year. Unless the trust instrument

27699-1702. Checks should be made payable to the Nongame and Endangered

or will creating the estate or trust specifically provides for the distribution of certain

Wildlife Fund. For more information about the Fund or to donate online, check

classes of income to different beneficiaries, the apportionment of additions and

out

deductions to the beneficiaries is determined on the basis that each beneficiary’s

Line 19 - Contribution of overpayment to the N. C. Education Endowment

share of the income for regular tax purposes (from Schedule K-1, Federal Form

Fund - If you wish to contribute all of part of your refund to the N. C. Education

1041) relates to adjusted total income (from Line 17 of Federal Form 1041). If the

Endowment Fund, enter the amount of your contribution on Line 19. Your election

trust instrument or will specifically provides for the distribution of certain classes

to contribute to the Fund cannot be changed after you file your return.

of income to different beneficiaries, any addition or deduction directly attributable

to a particular class of income must be apportioned to the beneficiary to which

Schedule A - North Carolina Fiduciary Adjustments

that class of income is distributed. In apportioning the adjustments, the income

Schedule A is provided for the computation of the North Carolina fiduciary

for regular tax purposes must be adjusted for distributions to the beneficiary

adjustments. The following additions and deductions are required by North Carolina

which are not reflected in the amount on Line 7. The adjusted total income (Line

law as adjustments to the income of the estate or trust.

17 of Federal Form 1041) must be adjusted (1) to exclude classes of income

that are not part of the distribution to the beneficiary; (2) to include classes of

Generally, estates and trusts are subject to the same additions and deductions allowed

to individuals; therefore, see the North Carolina Individual Income Tax Instructions for

income that are a part of the distribution to the beneficiary but are not included

a more detailed explanation of any applicable adjustments.

on Line 17; and (3) by any deduction treated differently for State and federal tax

purposes that adjusts federal taxable income (see additions and deductions, Line

Additions to income, to the extent the amounts are not included in income:

1 through 11 of Schedule A). The fiduciary may elect to apportion the federal

Line 1 - Enter on Line 1 any interest received from bonds or obligations of a state

deduction for State income tax to the estate or trust except in cases where the

or its political subdivisions other than North Carolina if not included in income.

beneficiary’s total distribution from the estate or trust has not been included in

his federal taxable income because it exceeded the estate’s or trust’s federal

Line 2 - Enter on Line 2 any other additions required.

distributable net income. In such cases, the addition for State income tax must

Line 3 - Enter the total of Lines 1 and 2 on Line 3. The total additions should be

be apportioned to the beneficiary to the extent his distribution exceeds the amount

apportioned between the beneficiaries and the fiduciary on Schedule B, Line 3.

included in federal taxable income because of the State income tax deduction.

After apportioning the additions and deductions to the beneficiaries, the balance

Deductions from income, to the extent the amounts are included in income:

is apportioned to the fiduciary.

Line 4 - Enter any interest income which was received from obligations of the

United States or United States’ possessions.

Enter the full name and identifying number of each beneficiary and determine the

additions and deductions to be allowed to each beneficiary and to the fiduciary.

Line 5 - Enter the taxable portion of any Social Security or Railroad Retirement

Each beneficiary should be furnished a Schedule NC K-1 showing the applicable

benefits included in income.

additions, deductions, tax credits, etc., to be reported on the beneficiary’s North

Line 6 - Enter on Line 6 retirement benefits received from vested N. C. State

Carolina income tax return. A nonresident individual, in calculating the percentage

government, N. C. local government, or federal government retirees. As a result

of taxable income subject to North Carolina tax on Line 15 of Page 1 of the individual

of the North Carolina Supreme Court’s decision in Bailey v. State of North

income tax return, must adjust his share of the income from North Carolina sources

Carolina, North Carolina may not tax certain retirement benefits received by

only by the additions and deductions attributable to the North Carolina income. The

retirees (and their beneficiaries and estates) of the State of North Carolina and its

fiduciary’s portion of the additions and deductions should be reported on Lines 2

local governments or by United States government retirees (and their beneficiaries

and 4, respectively, on Page 1 of Form D-407.

and estates), including military retirees. The exclusion applies to retirement

benefits received from certain defined benefit plans, such as the North Carolina

Form D-407TC - Estates and Trusts Tax Credit Summary

Teachers’ and State Employees’ Retirement System, the North Carolina Local

Governmental Employees’ Retirement System, the North Carolina Consolidated

The tax credit for income tax paid to another state or country must be allocated

Judicial Retirement System, the Federal Employees’ Retirement System, or the

between the fiduciary and the beneficiaries.

Part 5 of Form D-407TC must be

United States Civil Service Retirement System, if the retiree had five or more

completed to determine the tax credit allowable to the fiduciary; however, before

years of creditable service as of August 12, 1989. The exclusion also applies

Part 5 can be completed, gross income (from Line 9, Federal Form 1041) on which

to retirement benefits received from the State’s §401(k) and §457 plans if the

such tax was paid must be allocated between the fiduciary and the beneficiaries.

retiree had contributed or contracted to contribute to the plan prior to August 12,

1989. This exclusion does not apply to local government §457 plans or to

The fiduciary’s share and each beneficiary’s share of the gross income on which tax

§403(b) annuity plans. Benefits from other State, local, and federal retirement

has been paid to another state or country and the amount of tax paid on the income

plans may or may not be excluded depending on rulings in the Bailey case. The

is determined by the governing instrument and such amounts should be entered on

exclusion does not apply to retirement benefits paid to former teachers and state

Lines 3 and 4 of the fiduciary and beneficiary’s columns in Part 5, Section A. After

employees of other states and their political subdivisions. An estate entitled

allocating to the beneficiaries, enter the fiduciary’s share of gross income taxed in

to exclude retirement benefits from North Carolina income tax should claim a

deduction on Line 6 for the amount of excludable retirement benefits included in

another state or country on Line 1, Part 5, Section B. Enter on Line 2 the fiduciary’s

federal taxable income. A copy of Form 1099-R received from the payer must be

share of gross income from Federal Form 1041, Line 9. Complete the remaining

attached to the return to support the deduction.

Lines in Part 5, Section B to determine the fiduciary’s share of the tax credit.

Line 7 - Enter any state, local, or foreign income tax refund that was included

All tax credits allowed to individuals are allowed to estates and trusts except for

in income.

the tax credit for income taxes paid to other states by individuals and the tax credit

Line 8 - North Carolina law did not adopt the 50 percent bonus depreciation

for children.

provisions in IRC section 168(k) for the tax year 2008 or in IRC sections 168(k)

Complete Form D-407TC, Estates and Trusts Tax Credit Summary, if the estate or

or 168(n) for tax years 2009 and 2010. Similarly, North Carolina did not adopt

the provisions of the Small Business Jobs Act of 2010 which extended the 50

trust claims any tax credits. Include the form when filing Form D-407. If additional

percent bonus depreciation through 2011 and the Tax Relief Act of 2010 which

tax credits are claimed, submit a separate schedule showing how the credits were

doubled and extended bonus depreciation from 50 percent to 100 percent for

determined and how they are allocated between the beneficiaries and the fiduciary.

qualified property acquired and placed in service after September 8, 2010 and

before January 1, 2012. The Tax Relief Act of 2010 also provides 50% bonus

Sunset for Tax Credits - Effect on Future Installments and Carryforwards

depreciation for qualified property placed in service after December 31, 2011 and

- For tax year 2014, various tax credits have been repealed. Taxpayers that

before January 1, 2013. Certain long-lived property and transportation property is

qualified for these tax credits may continue to take any remaining installments and

eligible for 100% expensing if placed in service before January 1, 2013. Because

carryforwards of those tax credits after the sunset date if the taxpayer continues

North Carolina did not adopt the bonus depreciation provisions under IRC sections

to meet the statutory eligibility requirements for each particular tax credit.

168(k) and 168(n) of these Acts, an adjustment is required to add to income 85%

of the amount deducted. Any amount added to income on the 2009, 2010, 2011,

For example, the Article 3J credit for creating jobs is repealed for business activities

2012, and 2013 State returns may be deducted in five equal installments beginning

that occur on or after January 1, 2014. In tax year 2013, a taxpayer, which met all

with the 2010, 2011, 2012, 2013, and 2014 State returns, respectively. Therefore,

eligibility requirements set out in N.C. Gen. Stat. § 105-129.83 and satisfied the

enter 20 percent of the bonus depreciation added back on the 2009, 2010, 2011,

threshold requirement for job creation, creates jobs in this State. The taxpayer

2012, and 2013 State returns.

claimed the jobs credit by filing Form NC-478A (the applicable NC-478 series form)

Line 9 - Enter on Line 9 any other deductions required.

and by paying the fee of $500.00 with the 2013 tax return on April 15, 2014. The

taxpayer is allowed to take the first installment of the 2013 jobs credit on its 2014

Line 10 - Enter the total of Line 4, 5, 6, 7, 8f, and 9 on Line 10. The total deductions

tax return. Any unused portion of the first installment may be carried forward for

on Line 10 should be apportioned between the beneficiaries and the fiduciary on

the succeeding five years. The taxpayer is allowed to continue to take remaining

Schedule B, Line 4.

installments as long as the taxpayer continues to meet the requirements of N.C.

Schedule B - Apportionment of Adjustments

Gen. Stat. § 105-129.83 and N.C. Gen. Stat. § 105-129.87. If the taxpayer fails

to maintain eligibility requirements, remaining installments are forfeited and only

In taxing estates and trusts, all income is taxable to the fiduciary or to the

the carryforward amount of a previously accrued installment may be taken, subject

beneficiaries. The conduit rule for taxing estates and trusts is applicable for North

Carolina income tax purposes. Under the conduit rules regardless of who is taxed,

to the carryforward provisions of N.C. Gen. Stat. § 105-129.84.

Instructions For Estates And Trusts Income Tax Return (Form D-407a) - 2014 Page 3

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