SPEND THRIFT TRUST TAX PREPARATION 1
Stimson’s Financial Services, Inc. DBA Independent Financial Services Richard C. Stimson 9233 County Road 1236 Cleburne, TX 76033-8317 ifs@hughes.net INDEPENDENT FINANCIAL SERVICES 2
I have three degrees – each with a 4.0 GPA 1. Business Management 2. Computer Science 3. Accounting I am registered with the IRS as a Registered Tax Return Preparer – EFIN 805231 RICHARD C. STIMSON 3
Married 52 years. Retired Army Field Grade Officer with 20 years of combat commands, operations and intelligence services. 34 years operating my own bookkeeping, business management and tax preparation business. Over 20 years experience doing Spend Thrift Trusts tax preparations. Owner and operator of a ranch in North Central Texas. MY BACKGROUND 4
Trust tax return, Form 1041, will be prepared in accordance with IRS Title 26, Subtitle A, Chapter 1, Subchapter J, Part 1, Subpart A, Section 643 TAX RETURN PREPARATION 5
Section 643: Trust income (as defined later) will be excluded from federal income taxes to the extent the fiduciary, acting in good faith, does not pay or credit to any beneficiary and by reason of his/her determination in accordance with the Trust Document that such income be declared EXTRAORDINARY DIVIDENDS and allocable to the corpus of the Trust. TRUST INCOME 6
Trust information to be sent to the tax preparer: Name of the Trust as recorded with the IRS. EIN assigned to the Trust along with IRS letter. Date the Trust was formed. Mailing address for the Trust. Copy of the first and last page (signature page) of the Trust Document STEPS FOR TRUST TAX RETURN PREPARATION 7
Name, address and SSN for each Trustee. Name of the primary Trustee – for tax return and contact info. Name, address and SSN for each Beneficiary. Contact phone number, Fax number and e-mail for the primary Trustee. INFORMATION NEEDED 8
Once this information is received , the tax preparer will send the Trust a Chart of Accounts so the Trustee can maintain a Working List of Income, Authorized Expenses and Unauthorized Expenses. Chart of Accounts is a listing of Trust Income and Expenses by category ad account number. CHART OF ACCOUNTS 9
The Working List of income and expenses can be maintained using Quickbooks, Quicken, Excel, MS Word or even a sheet of paper. At year end the Trustee will send the Working List to the tax preparer by: Quickbooks – the backup file (QBB). Quicken – the working file. Excel Spreadsheet – using the Chart of Accounts. MS Office Word Doc – using the Chart of Accounts. Hand written sheet – using the Chart of Accounts. WORKING LIST OF INCOME 10
Copies of any tax forms received by the Trust (1099’s , K - 1’s, etc) must be sent to the tax preparer. After this Working List of income and expenses along with any tax forms are received by the tax preparer: A Disclaimer Sheet will be prepared and sent to the Trustee to be signed and returned. A billing invoice will also be sent and payment must be received to complete the return. Basic returns are billed $600. COPIES NEEDED 11
A draft return will then be prepared and sent to the Trustee for review and approval along with an IRS Form 8879-F to be signed and returned authorizing e-file of the return. The return will then be e-filed to the IRS. A complete package with copies of the return, back-up papers, any tax forms and a copy of the IRS acceptance of the return will be mailed to the Trust. RETURN DRAFT 12
INTEREST: Interest reported to the Trust on Forms 1099-INT or K- 1’s. Interest received under $10 (not reported on 1099- INT) ie: bank accounts with low interest. Interest earned on notes receivable to the Trust. ie: loans to Trustees or Beneficiaries. A minimum rate of interest must be paid – see IRS pubs. Any other interest paid to the Trust. TRUST INCOME 13
DIVIDENDS: Dividends reported to the Trust on Forms 1099-DIV or K- 1’s. Dividends received from a C-Corporation that the Trust is a stockholder. DIVIDENDS 14
CAPITAL GAINS OR LOSSES: Gains or losses from investments. Gains or losses reported to the Trust on Forms 1099- B. Gains or losses from sales of assets. Gains or losses reported to the Trust on K- 1’s. CAPITAL GAINS OR LOSSES 15
SCHEDULE E (SUPPLEMENTAL) INCOME: Rents or leases on Trust assets. Rents reported to the Trust on Forms 1099-MISC. Royalties reported to the Trust on Forms 1099-MISC (ie: oil and gas). Income from other trusts or estates reported to the Trust on Forms 1041 K- 1’s. The Trust can not be a stockholder of a Sub-S Corporation. SCHEDULE E INCOME 16
Partnership income reported to the Trust on Forms 1065 K- 1’s. The Trust can be a Limited Partner in a Partnership or LLC. The Trust CAN NOT be a General Partner – General Partners must pay income, social security and Medicare taxes on their share of partnership income. PARTNERSHIP INCOME 17
BUSINESS INCOME: Schedule C (Sole Proprietorship) or Schedule F (Farming): Income from these sources will be taxable income to the Trust and Forms 1099-MISC must to be issued to the operators (Trustee, Beneficiary or others) of these businesses and taxes paid by that individual (income, social security and medicare taxes). BUSINESS INCOME 18
Expenses must be necessary to operate and maintain the Trust or its assets, must be authorized by the Trust Document and PAID BY THE TRUST : INTEREST – Interest the Trust paid on: Mortgage Notes. Vehicle Notes. Personal Notes – 1099-INT must be issued to payee. IRS requires at least a minimum rate of interest be paid. Notes on other assets of the Trust. TRUST EXPENSES 19
TAXES – Taxes paid by the Trust for: Property taxes paid on Trust assets. Sales taxes paid on Trust purchases. Payroll taxes paid if the Trust has individuals being paid W-2 wages. FIDUCIARY FEES – Compensation paid to a Trustee and reported on Forms 1099-MISC. CHARITABLE DEDUCTIONS – Contributions paid to 501c3 organizations. ATTORNEY & TAX PREPARER FEES. PAID TAX INFORMATION 20
OTHER AUTHORIZED EXPENSES: ADVERTISING – to buy, sell or trade Trust assets. VEHICLE – all expenses to operate and maintain a vehicle endowed to the Trust. BANK & INVESTMENT CHARGES – a Trust bank or brokerage account. PROFESSIONAL SERVICES. DUES & SUBSCRIPTIONS. FEES & SERVICES. AUTHORIZED EXPENSES 21
INSURANCE – for Trust assets, fiduciaries or beneficiaries. SUPPLIES & MATERIALS – used by the Trust. POSTAGE & SHIPPING – made by the Trust. RENTS & LEASES – paid by the Trust. REPAIRS & MAINTENANCE – on Trust assets. OFFICE EXPENSES – to maintain and operate a Trust office.. TELEPHONE & INTERNET – used by the Trust. AUTHORIZED EXPENSES 22
ENTERTAINMENT & MEALS – paid by the Trust for Trust functions. TRAVEL – for Trust functions, Trust meetings, researching for new Trust assets, and other Trust activities. UTILITIES – for Trust assets or endowments. TRAINING & EDUCATION – in accordance with the Trust Document only and paid by the Trust. OTHER – other expenses authorized by the Trust Document. AUTHORIZED EXPENSES 23
** There must be receipts for ALL Trust expenses. Trustee must make notes on the back of each receipt to show WHO – WHEN – WHY the expense. ie: entertainment and meals receipts must show the reason for the expense and who was in attendance – “Business meeting with beneficiaries to discuss acquiring a new asset “ RECEIPTS FOR EXPENSES 24
Expenses not in accordance with the Trust Document. Expenses not needed to operate, maintain or manage the Trust or its assets. Expenses not needed for the education, training, medical care or well being of a beneficiary. Expenses NOT PAID by the Trust. UNAUTHORIZED TRUST EXPENSES 25
Unauthorized expenses will be reported as income to the Trustee or Beneficiary for the expense(s). A Trustee will receive a 1099-MISC for unauthorized expenses chargeable to him/her. A Beneficiary will receive a Form 1041 K-1 for the unauthorized expenses chargeable to them. UNAUTHORIZED EXPENSES 26
Types of unauthorized expenses but not limited to: Personal expenses such as hair cuts, personal hygiene and other personal grooming. Bank or investment fees for non Trust assets. Vehicle expenses for vehicles not endowed to the Trust. Dues & Subscriptions not used by the Trust. ie: golf club dues, cable TV, magazines and other subscriptions not needed to manage the Trust, etc. TYPES 27
Supplies and materials not used by the Trust or authorized by the Trust Document. Authorized would be books and materials for education or medical support and paid by the Trust. Postage on non Trust mailings. Rents or leases not authorized by the Trust Document. Repairs or Maintenance paid on non Trust assets. Taxes paid on non Trust assets or purchases. TYPES 28
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