An irrevocable trust reports income on Form 1041, the IRS's trust and estate tax return. Even if a trust is a separate taxpayer, it may not have to pay taxes. If it makes distributions to a beneficiary, the trust will take a distribution deduction on its tax return and the beneficiary will receive IRS Schedule K-1.
As the trust or estate beneficiary, you must include the amounts reported on your K-1 on your personal income tax return. Your K-1 will report each type, or character, of income you receive in various boxes of the form. For example, box 2a shows the amount of your income from ordinary dividends, and box 2b has the amount of box 2a that is qualified dividends.
When you report these amounts on your 1040, you’re able to take advantage of the lower rates of tax that apply to qualified dividends for the amounts reported in box 2b. Some of the other income categories reported on the K-1 include interest earnings, long-term and short-term capital gains, ordinary business income, and rental real estate income.
Use this link for additional information: What is a Schedule K-1 Form 1041: Estates and Trusts?
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