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In a revocable trust, the income has to be reported to the ...

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In a revocable trust, the income has to be reported to the IRS. Myself and wife and son are the grantors and trustees. How is the income reported on individual returns or does the trust report the income?
Submitted: 6 years ago.
Category: Tax
Expert:  Bill replied 6 years ago.
Customer

Generally, a trust tax return is not required for a revocable living trust. Your trust account should have your social security number as the tax identification number. Any income generated in your trust account would be reported on your individual tax return and retains the same character of income (dividends, interest, capital gains, etc.).

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Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3079
Experience: EA, CEBS - 34 years experience providing financial advice
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Customer: replied 6 years ago.
This will be a family trust with assets being transfered into it by the 3 grantors. If there is one trust, wouldn't it be easier to have a I.D.
number for the trust and file a return for the trust. Otherwise you would have to proportion the income earned from the trust and tie it to a particular asset by one of the grantors. To me, that seems like an accounting nightmare
Expert:  Bill replied 6 years ago.

If it is a revocable trust then it is not considered a separate tax entity because the grantors retain control over the assets and can withdraw assets at any time. For income that would belong to your son, you would furnish him a 1099 (for the respective type of income) and file a copy with the IRS. See page 2 reporting as a nominee/middleman - http://www.irs.gov/pub/irs-pdf/i1099gi.pdf

If you did obtain a separate tax identification number, which is required for an irrevocable trust, then a separate tax return (Form 1041) has to be filed each year with K-1s given to each beneficiary for their portions of the income.

http://www.castenvictor.com/PDF's/Title%20Matters%20-%20taxation%20Part%202.pdf

http://www.livingtrusts.info/taxnumbers.htm

 

Expert:  Bill replied 6 years ago.

Revising my previous post - Because your son is a grantor in addition to you and your wife, a separate TIN should be obtained. See page 2 and footnote 4 - http://www.irs.gov/pub/irs-pdf/fss4.pdf . Also, instead of filing Form 1041 each year the trust could elect the filing procedure under Optional Method 3 on page 7 - http://www.irs.gov/pub/irs-pdf/i1041.pdf

 

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