Tax Filing for a Revocable Trust

by Angela M. Wheeland

    Many taxpayers use a revocable trust to manage and distribute property as an alternative to a will. During the life of the trust, any income earned is dispersed to the grantor, or the trust’s creator, and only after death is the property transferred to the beneficiaries. Similar to a will, a revocable trust can be amended or canceled by the grantor at any time. The Internal Revenue Service treats revocable living trusts as a grantor type trust, which is not a separate entity. When reporting income from a revocable trust, you must treat the trust as if it doesn’t exist and report the income on the grantor’s personal tax return.

    Step 1

    Obtain Form 1040 and the corresponding instructions from the IRS website.

    Step 2

    Report any taxable interest income received in the line labeled “Taxable Interest” on Form 1040, which is Line 8a as of 2012. This amount is reported in Box 1 of Form 1099-INT or Box 2 of Form 1099-OID. If your taxable interest exceeds $1,500, you must also complete Schedule B and attach the form to your income tax return.

    Step 3

    Report tax-exempt interest in the line labeled “Tax-Exempt Interest,” which is Line 8b. You can find this amount located in Box 8 of Form 1099-INT.

    Step 4

    Enter your ordinary dividends in the line labeled “Ordinary Dividends,” which is Line 9a. If you received ordinary dividends, the payer should have sent you a Form 1099-DIV and reported the amount in Box 1a. If your ordinary dividends exceeded $1,500, you must also complete Schedule B.

    Step 5

    Report any qualified dividends in the line labeled “Qualified Dividends,” which is Line 9b on Form 1040. You can locate this information in Box 1b of Form 1099-DIV. Qualified dividends are generally eligible for a lower tax rate but certain exceptions apply. For more information, refer to the Schedule B instructions.

    Step 6

    Enter your capital gains or losses in the line labeled “Capital Gain or Loss,” which is generally Line 13. Your Form 1099-DIV reports this information in Box 2a. You must also complete Schedule D and Form 8949 and attach the forms to your tax return if you are reporting capital gains or losses.

    Step 7

    Complete Schedule E if you earned income from assets such as real estate, partnerships, trusts, royalties and S corporations. Generally, you can find this information reported in Box 1, 2 or 3 on Form 1099-MISC. You must also provide any expenses and details about the assets on Schedule E. Enter the total income or loss from Schedule E in the appropriate line on Form 1040, which is Line 17 as of 2012.

    Tip

    • Prepare your personal income tax return as you normally would without the trust, reporting any additional income, deductions, credits and payments on Form 1040.
    • If you have any questions about preparing your personal income tax return, consult a tax professional.
    • A revocable trust becomes a separate entity only after the death of the grantor. At this point, the beneficiary must obtain an employer identification number and file a separate tax return for the entity if the income exceeds $600 in a year. To file a tax return for a separate trust entity, you must use Form 1041.

    About the Author

    Angela M. Wheeland specializes in topics related to taxation, technology, gaming and criminal law. She has contributed to several websites and serves as the lead content editor for a construction-related website. Wheeland holds an Associate of Arts in accounting and criminal justice. She has owned and operated her own income tax-preparation business since 2006.

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