Irrevocable Trust Filing Requirements

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A revocable trust does not file a separate tax return--its income is attributed to its grantor, who reports it on his personal income tax return. An irrevocable trust is considered to be a separate legal entity, however, and must file a separate tax return if certain annual income thresholds are met. The trust document that creates the trust need not be filed with governmental authorities to obtain legal status.

Determining Irrevocability

Normally, a trust is considered revocable by its grantor unless the trust document states that it is irrevocable. State laws differ on this point, however. A trust might be considered irrevocable if its assets are held in the name of the trust itself rather than in the grantor's name--if, for example, real estate is titled in the name of the "John Smith Trust Fund," or if cash is kept in a bank account named after the trust.

Filing Triggers

The obligation to file a trust tax return is triggered if the trust earns any taxable income at all. Even if all of the trust's income is nontaxable, it must file a return if it earns at least $600 during the tax year, or if any of the beneficiaries is a nonresident alien. It is the trustee's obligation to file this return, not the grantor's.

Form 1041

Trustees must file Form 1041 if any filing requirement is triggered, even if the trust owes no taxes. Form 1041 reports trust income, deductions and capital gains and losses. Form 1041 must also report the amount of any employment taxes that were deducted from the pay of any household employees employed by the trust. The filing deadline is April 15 or the next business day thereafter, although the trust may receive an automatic five-month filing extension by filing Form 7004.

Schedule K-1 and Distributions

If the trust makes distributions to beneficiaries during the tax year, it must file Schedule K-1. Schedule K-1 reports all distributions made to beneficiaries and is designed to be used in conjunction with Form 1041 (do not use the Schedule K-1 that is used with Form 1065.) Copies of Schedule K-1 must be distributed to every beneficiary who received a distribution from the trust during the tax year, so that he can report it as personal income on his 1040 tax return.