How to Prepare Taxes for a Trust
- 1). Determine whether the trust is a grantor trust or an irrevocable trust. There is no "bright line" rule that will definitively qualify your trust as irrevocable; the IRS may disagree with you. If any of the trust assets are titled in your name, however, the trust is almost certainly a grantor trust. Likewise, if the trust deed gives you significant control over the trust assets, your trust is likely to be classified as a grantor trust. Otherwise, it will probably be classified as an irrevocable trust. If you determine that your trust is a grantor trust, include trust income on your personal income tax return as ordinary income and calculate your taxes as usual.
- 2). Calculate the income that your trust received during the tax year.
- 3). Determine whether an income tax return must be filed on behalf of the trust. Filing is required if the trust received more than $600 in income during the tax year or if at least one of the trust beneficiaries is neither a citizen nor a permanent resident of the United States.
- 4). Download IRS Form 1041, U.S. Income Tax Return for Estates and Trusts. Fill it out and file it with the IRS Service Center with jurisdiction over the trust (the address for each jurisdiction is included in the instructions). Income for trusts is taxed in much the same way as individual and corporate income is taxed, with similar deductions.
- 5). Download IRS Schedule K-1, fill one out for each of the trust beneficiaries who received income during the tax year and distribute the appropriate version to each beneficiary. This will help beneficiaries fill out their own tax returns and help the IRS keep up with taxable distributions from the trust assets.
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