Moneyzine
Contents
/Personal Finance/Distributable Net Income (DNI)

Distributable Net Income (DNI)

Moneyzine Editor
Author: 
Moneyzine Editor
1 mins
September 25th, 2023
Advertiser Disclosure

Definition

The term distributable net income is used to describe a calculation that allocates the income derived from a trust between its beneficiaries and the trust. Calculating distributable net income prevents double taxation of the money generated by a trust.

Calculation

Distributable Net Income = Taxable Income - Capital Gain (or + Capital Loss) + Tax Exemption

Where:

  • Taxable Income = Interest Income + Dividends + Capital Gains (or - Capital Losses) - Fees - Tax Exemption

Explanation

The calculation of distributable net income, or DNI, is used to allocate income between a trust and its beneficiaries. Distributable net income is the maximum taxable amount received by a beneficiary. Any distribution made to a beneficiary in excess of DNI will be free of income taxes since it will consist of principal.

DNI is viewed by the Internal Revenue Service (IRS) as an estimate of the economic value derived from a distribution to a beneficiary. In practice, DNI provides beneficiaries with a reliable source of income while minimizing income taxes paid by the trust.

Example

The assets of a trust generated income of $32,000, of which $12,000 was interest income and $20,000 was related to dividends. The assets of the trust also realized a capital gain of $30,000. The trustees charged administrative fees of $2,000.

The taxable income for this trust would be calculated as:= Interest Income ($12,000) + Dividends ($20,000) + Capital Gain ($30,000) - Fees ($2,000) - Exemption ($100)= $12,000 + $20,000 +$30,000 - $2,000 - $100, or $59,900

The distributable net income of the trust would be calculated as:= Taxable Income - Capital Gain + Exemption= $59,900 - $30,000 + $100, or $30,000

Related Terms

Related Content

  • What Can Help You Meet Your Budget While Shopping for Important Items?
    Budgeting while ensuring you don't compromise on quality can seem daunting. Whether filling your pantry, updating your wardrobe, or keeping up with the latest tech, smart shopping strategies are crucial for keeping your finances in check.
    April 2nd, 2024
  • How to Make a Million Dollars in 10 Years
    Truthfully, this title should actually be “How to Make a Million Dollars in 10 Years Without Going Into Debt", but that is just getting a little too winded for my liking. It’s true though!
    November 5th, 2024
  • How to Apply Maslow’s Hierarchy to Your Money This Year
    You might vaguely remember your psychology teacher talking about Maslow. He pointed at a picture of a triangle as you nodded off in the back of the school room.
    November 5th, 2024
  • How to Tackle Multiple Savings Goals
    When there’s only so much money to go around, there are often multiple savings goals competing for your money. Think of the young professional who’d like to get a more reliable car, buy a house, and save for retirement. Or consider the young family that’s saving for college, retirement, and a bigger house.
    March 22nd, 2024
  • The Countdown to Early Retirement: 10 Expenses to Eliminate
    Dreaming of waving goodbye to the daily grind five years ahead of schedule? The road to early retirement is paved with more than good intentions; it requires a meticulously crafted strategy with surprising twists. It's not solely about what you should be doing—like diligently saving a portion of your income or investing wisely—but also about what you need to stop doing.
    March 22nd, 2024

Contributors

Moneyzine Editor
The Moneyzine editorial team consists of writers and content specialists with diverse backgrounds.
Moneyzine 2024. All Rights Reserved.