Does Your Tax Guy Know How To Prepare A Trust Tax Return?


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David M. Kaufmann, CPA

Voice: 720.493.4804


Physical Address:

2831 Wyecliff Way
Highlands Ranch, CO 80126

Mailing Address:

PO Box 632285
Highlands Ranch, CO 801

Does Your Tax Professional Know His Trust Tax Law?

Lets face it.  It is hard to tell if a "professional" knows his stuff.  So, how do you know if the guy that is about to prepare a trust or estate return for you knows his stuff?

I have a good test.  Here is the question:

"How are professional fees allocated towards income in preparation of a beneficiaries K-1?"

Answer How I Rate The Answer
I don't know. As fast as you can, make an excuse why you need to leave this guy's office.

Find someone else.

Allocate this deduction to all classes of income. This is a correct answer, but it is not the correct answer that you want to hear. Again, find an excuse to get out of the office.

Find someone else.

Allocate this deduction first to....

   Call Dave Kaufmann, CPA at 1-720-493-4804 to see what the right answer is.

Bingo.  This person knows his or her stuff.  Now ask one more critical question:

Before we get to the next question, have the trust or estate expert explain why this is the correct answer.  The response should be:

Allocate deductions to types of income that can be taxed as high as 35% rather than types of income that have maximum tax rates of 15%.

Now ask the professional:

"What needs to be done to allocate the professional fees and other deductions to taxable interest and nonqualified dividends?"

The correct answer is that the trustee must designate, preferably in writing, that professional fees, and other deductions should first be allocated to interest income that is fully taxable and to nonqualified dividends.

Give bonus points if the tax professional mentions treasury regulation 1.652(b)-3(b).

"What is the filing requirement for a US fiduciary income tax return (Form 10401) for an estate?"

Over $600 of gross income. Example: If you sell $601 of stock for no gain or loss, the gross income is over $600, and a fiduciary income tax return, Form 1040, is required to be filed.

"What is the year - end  for a US fiduciary income tax return (Form 10401) for an estate?"

It depends on how the first US Fiduciary Income Tax Return (Form 1041) is filed. The longest year - end that you can choose is the month end that would not exceed a year from the date of of death. Example: If the date of death is April 29, 2011, the latest year - end would be March 31, 2012. Please note that the IRS Notice "CP 575 B" that assigns an employer ID number to the estate will always say that the Form 1041 is due on April 15. That IRS notice is incorrect, unless the date of death is in January! The year - end that is specified on Form 1041 determines the year - end, not IRS Notice "CP 575 B."  Find out when estate income taxes are due.

Extra Credit: Ask your tax professional why it benefits the beneficiaries to have the estate year - end that is not December 31.

Extra Credit: Ask your tax professional why the above answer is correct for estates, but incorrect for most trusts.

If you have questions about this, do not hesitate to contact us at 720-493-4804.  We serve clients all over the country. A large portion of my business is preparing tax returns and tax planning for trusts, estates and beneficiaries of trusts and estates.

Back to our Frequently Asked Questions page for trusts.

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