What is the Section 663(b) Election for Trusts & Estates

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Certain trusts and estates can make an IRC Section 663(b) election to accelerate the inclusion of distributions.

If a trustee makes a distribution to a beneficiary within 65 days of the start of the tax year, an election can be made to record the distribution in the prior period. The election is recorded on IRS Form 1041 in the "Other Information" section.

This election is often beneficial because it records more income on the tax return of the beneficiary versus the trusts. The income beneficiaries generally have more favorable marginal tax brackets and greater deductions over the trust, so it results in an overall lower effective tax burden for the year.

The election is not always the right decision, as careful consideration must be given to the effective tax rates in the prior and current period.

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