Taxation of liquidating
If money is distributed to the beneficiaries, then whether it is taxable or not to the beneficiaries will depend on whether principal or income was distributed, and if it was income, then whether it was tax-free income or retained income from previous years that the trust has already paid tax on.Because trusts are not subject to double taxation, either principal or income on which the trust paid taxes can be distributed tax-free to the beneficiaries. Other times, the substantial allocation to one company stock is forced. Sometimes, the decision to exceed the rule is intentional.Creditors are always senior to shareholders in receiving the corporation's assets upon winding up.However, in case all debts to creditors have been fully satisfied, there is a surplus left to divide among equity-holders.Furthermore, what is the best strategy to diversify* a large allocation of company stock into other holdings?
The following Q&A and Cost Basis Calculator are designed to help you understand the tax implications of the initial liquidating distribution of .20 per share paid to shareholders in December 2016 and the remaining liquidating distributions. Even so, I find many investors who break this suggestion and exceed the rule of thumb. 10-15% allows an employee or shareholder to participate in the upside of the company should the stock appreciate and, perhaps more importantly, be somewhat insulated from the risk of total wealth destruction should the company underperform and lose its value precipitously (yes, it is possible and this can definitely happen).If you're in the 35 percent tax bracket, that same distribution costs you ,450 in income taxes. A trust is a fiduciary entity whose objective is to hold and invest money or property held in the trust for the benefit of the beneficiaries.