Trust Taxation

Trusts, like any other entity, must pay income taxes for the revenue it generates during the year. One key distinction between trusts and other taxpayers is the fact that trust tax brackets are very compressed. The following graphs illustrates such as it depicts the trust tax brackets for 2010: 

Federal

              

Taxable Income	Tax Rate
$0 - $2300	15%
$2300 - $5350	$345 plus 25% of amount over $2300
$5350 - $8200	$1107.50 plus 28% of amount over $5350
$8200 - $11,200	$1905.50 plus 33% of amount over $8200
over $11,200	$2895.50 plus 35% of amount over $11,200

California

Taxable Income	Tax Rate
$0 to $7124	1.25 %
$7124 to $16,890	$89.05 plus 2.25 % of amount over $7124
$16,890 to $26,657	$308.79 plus 4.25 % of amount over $16,890
$26,657 to $37,005	$723.89 plus 6.25 % of amount over $26,657
$37,005 to $46,766	$1370.64 plus 8.25 % of amount over $37,005
over $46,766	$2175.92 plus 9.55 % of amount over $46,766

It should be noted that federal and California trust taxation varies each year so by no means do the above two graphs represent the 2011 trust tax brackets. Instead, the graphs represent how quickly a trust reaches the top income tax bracket. For example, a person in 2010 does not reach the top income tax bracket until they earn $373,650. Whereas, a trust reaches the top income tax bracket by earning a mere $11,200. Clearly this is a large discrepancy.