This is my first year filing taxes for a grantor irrevocable trust. My wife and I are the grantors, my son is the trustee.
I researched this and here's what I found.
The income from the trust can be filed on my personal taxes. With a "informational only" 1041 being filed separately.
I researched this and it seems this is how to handle the "income" in the trust. Following is what I found.
My question is, am I on the right track based on the following?
**Trust’s Tax Status**: A grantor trust doesn’t file its own income tax return for the income attributed to you. Instead, the trust files Form 1041 (U.S. Income Tax Return for Estates and Trusts) with an informational statement, indicating it’s a grantor trust.
Your Responsibility: You report the trust’s income on your individual tax return (Form 1040). The types of income—e.g., interest, dividends, capital gains, rental income—get reported on the appropriate schedules:
- Interest: Schedule B
- Dividends: Schedule B
- Capital Gains: Schedule D
No Separate Tax ID Needed: Because it’s a grantor trust, the trust typically uses your Social Security Number (SSN) rather than a separate Employer Identification Number (EIN), though some irrevocable trusts might have an EIN for administrative purposes.
Then specifically to handling of dividends:
If you received a Form 1099-DIV from the trust as the grantor of a grantor irrevocable trust, it means the trust is reporting dividend income paid to you (or attributed to you as the grantor). Since it’s a grantor trust, you’ll report this income on your personal tax return (Form 1040) as if you received the dividends directly. Here’s where to put it:
- Form 1040, Schedule B (Interest and Ordinary Dividends):
- Part II – Ordinary Dividends: This is where you report the dividend income from the Form 1099-DIV.
- Line 5: List the payer (in this case, the trust or the entity it passed through) and the amount of ordinary dividends from Box 1a of the 1099-DIV.
- If there are multiple payers (e.g., the trust and other sources), list each separately or attach a statement summarizing them.
- Line 6: Total all ordinary dividends, including those from the trust, and enter the sum here. This amount then flows to Form 1040, Line 3b (Ordinary Dividends).
- Qualified Dividends (if applicable):
- If Box 1b of the 1099-DIV shows qualified dividends (dividends eligible for lower capital gains tax rates), you’ll also need to report these, but they still go on Schedule B, Line 5, alongside ordinary dividends.
- The qualified portion (Box 1b) gets carried over to Form 1040, Line 3a, and is used later when calculating your tax on the Qualified Dividends and Capital Gain Tax Worksheet (in the Form 1040 instructions).
- Other 1099-DIV Boxes:
- Box 2a (Total Capital Gain Distributions): If the trust reports capital gain distributions, these go on Schedule D (Capital Gains and Losses), Line 13, not Schedule B.
- Box 3 (Nondividend Distributions): These are typically a return of capital and don’t get reported as income unless they exceed your basis in the trust assets (consult a tax pro if this applies).
- Box 11 (Exempt-Interest Dividends): If the trust paid exempt-interest dividends (e.g., from municipal bonds), report these on Form 1040, Line 2a (Tax-Exempt Interest), not Schedule B.
- Flow to Form 1040:
- After entering the totals on Schedule B, the ordinary dividends (Line 6) transfer to Form 1040, Line 3b.
- Qualified dividends (from Box 1b of 1099-DIV) go to Form 1040, Line 3a.
