Other Tax Questions
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How to File Family Trust and Personal Return
Posted by: edge, April 3, 2008 03:07PM
I am filing a personal return for my mother which includes her personal return and a Family Trust (Trust under Will) my late father. My mother is the Trustee. How do I report income from the Trust and how do I file the Trust return. The trust is currently funded only with Bank Accounts (no stocks)

Thanks.

Re: How to File Family Trust and Personal Return
Posted by: earlyfiler, April 3, 2008 04:47PM
And is this the first year for this kind of situation or is it your first year doing the paperwork? If it is the former, please consult with the person who has been doing the paperwork. If it is a new situation, then here's the most basic of things you need to understand.

Mom files a 1040 listing all her income, including any income she gets from the Trust. The trustee of the Trust has to file a Form 1041, which is like a 1040, but for Trusts and Estates, showing what income the Trust earned on the B of A accounts. The 1041 Form also will have to tell the IRS happened to that income. If all the income was given to your Mother, then that amount gets reported on her Form 1040 as income from a Trust. If, however, the income is kept by the Trust, then the Trust has to pay tax on whatever income it does not distribute to Mom.
Keep in mind they are separate taxpayers and one pays or the other pays.

It being April 3, it's pretty late in the game if you are just getting started. Mom may need to get an iextension to her 1040, or file by the 15th and do an amended tax return later when she gets a K-1 form from the trustee of the Trust (her) showing what to put on her 1040. The trustee must send each beneficiary a K-1 form each year.

So two returns are due by 4/15/08 and the 1040 is easier to do than the 1041. Good luck. I am sure it may not be all that bad if all the Trust earns is interest and it all is given to Mom.




Re: How to File Family Trust and Personal Return
Posted by: edge, April 3, 2008 06:28PM
earlyfiler Wrote:
-------------------------------------------------------
> And is this the first year for this kind of
> situation or is it your first year doing the
> paperwork?

This is my first year doing the paper work. Looks like I need to do an extension, K-1 have not been prepared yet. She is the Trustee and receives all the income from the Trust per the terms.


Re: How to File Family Trust and Personal Return
Posted by: earlyfiler, April 4, 2008 01:35AM
Then this ought to be reasonably simple. The Trust files a 1041 showing all income has been distributed and pays no tax. It probably is a simple trust. Mom reports all the distributed income on her tax return. Can't somebody crank out a K-1 and a 1041 pretty soon so everyone can file on time. I understand filing on time this year helps with any so called stimilus payment, assuming Mom is entitled to one at all.

Re: How to File Family Trust and Personal Return
Posted by: Art, April 4, 2008 02:45AM
She could anticipate the K-1 and file as if she received it.

If it's all that simple, since the taxpayer never needs to submit the K-1 with her 1040, she can file a 1040 and just keep the anticipated K-1 when it does arrive.

Re: How to File Family Trust and Personal Return
Posted by: earlyfiler, April 4, 2008 12:50PM
That works if the trust's income is straightforward and the trustee will not have to deal with oddballs like tax free interest and she is not going to deduct expenses on the 1041. This may well be the case where gross trust and net trust income would be pretty much the same, save a very minor difference because of the exemmption. This one sounds like it could be a simple trust.

Re: How to File Family Trust and Personal Return
Posted by: edge, April 4, 2008 02:54PM
A few questions. How do we determine if it is a simple trust? Do both a Schedule K-1 (Form 1065) and Form 1041 need to be completed by mother who is the Trustee? Is is best to show the Trust bypass the income to my mother? Would then a Form 1040 be completed for her personal return and show the income from the Trust?

Re: How to File Family Trust and Personal Return
Posted by: LJM, April 4, 2008 03:53PM
1. This kind of trust is usually a "simple trust". See page 14 of the Form 1041 instructions for definition of a "simple trust".

2. Form 1065 is for partnerships - RED HERRING.

3. Fill out Form 1041

4. Fill out Form 1041 K-1.

5. The "interest" reported in "box 1" of Form 1041 K-1 is reported on your mom's Form 1040 as interest income (the same as if the interest came directly to your mom from a bank).

Lewis



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