When does a trust have to file a tax return?

A trust is required to file a tax return, whether or not any tax would be due, based on numerous factors. Factors include the type of trust in place and the kind of income being generated. IRS Form 1041, "U.S. Income Tax Return for Estates and Trusts" is the most common form that trusts use to report income and pay taxes. Here are the cases when a trust must file a tax return:

1. Income Generating: For any tax year, a trust shall be required to file a return if it receives a gross income of $600 or more, even though no part of such income may be distributed to beneficiaries. Gross income includes all the income without considering any type of exemption, deduction, or credit. This may include all kinds of income derived from dividends, interest, rent, capital gains, etc. Even if the income is not distributed to beneficiaries, the income shall be reported in the trust and tax is to be paid thereof.
2. Grantor Trusts: When you have a grantor trust, in which the income of the trust is reported on the grantor's personal return, thereby retaining in the grantor control over the trust's assets, no separate tax return by the trust may be required or necessary. Nevertheless, in some instances of undistributed income or specific kinds of elections, filing of Form 1041 may be required.
3. Distributions to Beneficiaries: A trust that distributes the income amongst the beneficiaries thereof is obliged to file a return of income for the financial year. Beneficiaries thereafter have to report their distributed income on their respective tax returns. The trust will provide beneficiaries with Schedule K-1 forms, detailing their share of the income, deductions, and credits.
4. Irrevocable Trusts: Normally, an irrevocable trust must file Form 1041 if it has any form of income from sources, irrespective of the fact that such income is distributed or not. To be precise, this is because the income earned by the trust is normally taxed either to the trust or the beneficiaries, whoever the case may be, with respect to the distribution of the income.
5. Filing Deadline: Normally, the due date of the filing of Form 1041 is April 15th of the year succeeding the tax year; provided, however, that if the trust is a calendar year trust, it may request an extension.

Lastly, if a trust derives income above the threshold or distributes income to beneficiaries, then it has to file a return. Being at a point to understand if filing and how it can be filed is very important to obtain compliance with the law and avoid penalties that might arise due to misunderstanding. A tax consultant will assist in understanding these requirements.