Does a trust pay taxes?

There are only two situations when a trust is required to pay a tax. However, let's eliminate the one outlier that is the exception to the rule. If the trust is revocable and the grantor is still alive, then all of the income and capital gains are reported on the grantor's personal income tax return and not by the trust.  Back to your question. The first circumstance in which a trust pays a tax is when there is capital gains taken during the calendar year by the trust. When this takes place, the trust and not the beneficiary is required to pay the tax to the extent any taxes are due. The second situation comes up if the trust allows for income to be accumulated and in fact does accumulate the income in any one calendar year. Under normal circumstances, all income is typically paid out especially in what we refer to as a "Simple Trust". A "Sim ple Trust" is one in which the trust document requires the distribution of income at least annually. The second situation is a "Complex Trust".   In this particular document the income can be paid out and/or accumulated. To the extent it's been paid out, the trust pays no tax on the income that's distributed. If however the trust accumulates income and adds it to principal, the trust pays the tax with a much smaller exemption in a much much higher tax bracket. The taxation of trust income is 39.6% at $12.300 for 2015.  Finally, there is the concept of "distributable net income" (DNI) in effect this means that there are times when the income beneficiary is entitled to certain deductions that offset some of the taxable income. This will always be reported on the federal form K-1 for the trust and must be distributed to the beneficiary early in the tax season. I hope this helps and good luck