Does Trust with Little Income Have to File Tax Return?
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Question:
My father passed away in August of 2023. He had a revocable trust naming me and my sister as co-executors. He had one bank account worth $100K. No real estate. Once he passed, we obtained an EIN from the IRS and my sister and I became the trustees for his now non-revocable trust bank account. The trust calls for an even 50/50 split. The non-revocable trust bank account earned $430 of interest for the year 2023. I took my half of the $100K in December 2023. My sister took her half in January 2024. Am I correct in assuming since the trust earned less than $600, no 1041 tax return is required this year by the IRS and no K-1s are needed. Should we wait until April of 2025 to file the final 1041 tax return to close out the trust, or can we do it this April even though my sister took her half in the year 2024? I would prefer to close out the trust this year.
Response:
You do need to file a 1041 for 2023 since the trust earned taxable income during the year because the interest income is taxable. According Form 1041 instructions, the trust has to file a tax return if the trust has:
1. Any taxable income for the tax year; or
2. Gross income of $600 or more (regardless of taxable income).
The good news is that you can you can deem half the income to your sister even though she didn’t take her half share until 2024. The trust tax rules allow income distributed during the first 65 days of the year to be deemed as having been distributed during the previous tax year. Given this rule, it’s possible that you could make the 2023 return the final return for the trust. But for a definitive answer, please consult a fiduciary income tax advisor.
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