Trust Tax Returns: What To Know

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Trust Tax Returns: What To Know

23 January 2018
 Categories: , Blog

After establishing a trust to simplify your assets and finances, it may move to the back of your mind as you worry about more immediate issues. However, when tax time arrives, you may wonder whether a tax return should be filed specifically for that trust or whether there are other tax issues to concern yourself with.The basic details provided below should better inform you about such matters.

Must You File a Tax Return for Your Trust?

Ultimately, the type of trust you've set up will dictate whether a tax return is something to complete. If, for example, you've arranged a revocable living trust, you won't need to move forward with a separate tax return for that entity. That's largely because you are administering and managing the trust; any income from the trust must be reported by you on your personal tax returns as supplemental income. Of course, you will pay taxes on that income.

If you should pass away, a revocable trust then becomes irrevocable and the trustee you've named is then responsible for taking charge of your trust. As such, they're indeed required to file a tax return if the trust's income for a year is above $600. Form 1041 is the required document.

If you originally set up an irrevocable trust, such a return should be done by the trustee as well, even while you're still alive. That's because assets in a trust are no longer technically yours; they belong to the trust.

What are Tax Implications for Your Beneficiaries?

Once the trust begins dispersing money to those you've designated as beneficiaries, the trustee must include a K-1 document for each payment given out and include those documents before submitting the trust tax return to the government. Your beneficiaries will receive their payments and a copy of the relevant K-1 but they must also include that information as supplemental income on their own personal returns.

Your beneficiaries may find themselves surprised that their trust money increases their income to the point where they are in a different, higher tax bracket. If you die and your revocable trust transforms into an irrevocable one, even your spouse may find a difference in the tax rate they paid before and after your death. It's wise to talk with beneficiaries and tax professionals while you're alive so all parties understand what their tax burden may be.

Tax issues related to your trust should be well known by you and your family. Professional tax services are vital for filling appropriate trust tax returns and clarifying details for everyone involved.

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An Enjoyable Retirement

Several years ago, my dear dad decided he needed to start saving money for retirement. After speaking with an experienced financial advisor, my parent started a Roth IRA. Over the years, my dad’s retirement account has accumulated a substantial sum of money. He recently told me he plans to retire after working for two more years. Do you want to retire someday but are afraid you won’t be able to afford to quit your job? Consider scheduling an appointment with a reputable financial advisor in your area. This professional can talk with you and help you develop a personalized savings plan. On this blog, I hope you will discover the most common methods people utilize to save money for retirement.