- 1). Confirm the type of trust. The IRS treats trusts differently than state laws. For tax purposes, if the grantor or settlor of the trust retains certain powers over or benefits in the trust, it will be considered a grantor trust by the IRS, and the income is taxed to the grantor. If the grantor remains a substantial owner of the trust, it is not irrevocable in the eyes of the IRS, and a separate tax filing is not necessary.
- 2). Determine the filing requirement. A trust other than a grantor trust is obligated to file a tax return if it has any taxable income, has more than $600 of gross income in a single year, or has a beneficiary who is a nonresident alien (see Instructions for Form 1041 in the Resources section). Otherwise, no filing requirement exists, even for a trust that is not a grantor trust.
- 3). File Form 1041. If the trust has a filing requirement according to the previous step, this is the appropriate form (see the Resources section). This two-page document is similar to an individual tax return and should be straightforward for anyone familiar with preparing individual tax-return documents. Form 1041 must be completed by the fiduciary, or trustee, of the trust or their designated representative.
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