The government collects taxes to fund various projects that benefit the citizens, including infrastructure, health and education. These taxes are paid by individuals, as well as businesses of any scale. With a fiduciary income tax return, the income of an estate or a trust is reported and the tax return is filed by a court representative or the estate administrator. To estimate the income tax liability, the income, profits, losses, deductions and distributions of the estate or trust, are all taken into consideration.

 

What do you understand by “fiduciary”?

 

The term fiduciary is used for a person who is responsible for the supervision of an estate or a trust. These responsibilities also comprise filing the necessary tax returns. If a person is not legally or physically authorized to take care of an estate, then it falls on the fiduciary to manage it on behalf of that person. Also, a fiduciary holds assets for a deceased owner for a temporary duration of time, before handing it over to the rightful heir. Any income that has been earned posthumously will also need to be taxed, and this is where the fiduciary has to come in.

 

How is the taxable income determined?

 

Determining the taxes for a trust or an estate is not much different from that of an individual. After a deduction of a portion that goes to the legal heirs, any income that remains becomes taxable by the estate. Heirs are required to pay taxes only for the portion of the asset that they have received. Perhaps the most significant difference between taxes paid by a trust or an estate and that paid by an individual is the exemption. For a person, the tax exemptions are higher as compared to that of an estate.

 

Who must file the tax and when?

 

As the fiduciary is held responsible for everything regarding the estate for the time being, he has to be the one who files the taxes that the trust or estate’s income will generate. In case of an estate, if it has more than $600 in taxable income or a nonresident beneficiary, then he has to file the form 1041. On the other hand, if it’s a trust that he’s accountable for, the 1041 form will have to be filed for any taxable income or beneficiary who is a nonresident alien.

 

If the estate or trust is following a calendar year, then the taxes need to be filed by mid April. If the fiscal year is being followed, then the taxes will have to be filed by the 15th day of the 4th month following the end of the fiscal year.

 

If you are looking to file a fiduciary tax return and are needing a bit of guidance do not hesitate to contact us at Wealthnest Tax Services to schedule your consultation today.