A trust is a separate legal and taxable entity. The structure of the trust determines whether or not the trust pays taxes. A trust structure can be simple, complex or a grantor trust. Simple trusts and complex trusts pay their own income taxes. Grantor trusts do NOT pay their own taxes – the grantor of the trust pays the taxes on a grantor trust’s income.
For simple and complex trust, if the trust has any taxable income (gross income less deductions is greater than $0), or has gross income of $600 or more, the trustee must file a tax return, IRS Form 1041.
Strategy to Lower Your Taxes
For simple and complex trust you can deduct trustee fees, tax return preparer fees, state taxes paid, and take the income distribution deduction. Because a grantor trust is not considered a separate taxpayer, it cannot claim its own deductions.
Are You Doing These Things?
Tracking Repairs to Real Estate held by the Trust
Tracking Distributions made to Beneficiaries of the Trust
Tracking State, Local, and Real Property Taxes
Tracking Expenses of the Estate
Tracking Administrative Expenses (example: trustee fees, attorney fees, tax preparer fees, etc.)
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