Fiduciary Income Tax: From A to Z
The key word here is Fiduciary and many a time, people get troubled over what exactly a Fiduciary Income Tax is? Many are unaware of the existence of this term and the set of conditions under which the Fiduciary Income Tax becomes applicable to them. We will explain each and every aspect of this particular income tax to ease out your concern regarding the same.
What does the word ‘Fiduciary’ in Fiduciary Income Tax Mean?
The word ‘Fiduciary’ in simple words points towards the person who in a legal and ethical capacity acts on the other person’s behalf. So, Fiduciary Income Tax refers to the agent who files the tax return instead of the taxpayer him or herself. “Principal” is the term designated to the individual on whose behalf the chosen fiduciary acts.
The Conditions That Call For a Fiduciary
Business related- Sometimes, a particular business may appoint a person to function on its behalf in all financial matters. In this case, the tax return is regarded as Fiduciary Income tax return.
Guardians- Suppose an individual is not physically or legally empowered to take care of his or her financial matters, for example he/ she is a minor (under 18 years of age); a Fiduciary is given the legal authority mostly by the court of law to act on behalf of that particular person.
Related Terms One Must Be Aware Of
Post the death of an individual, all of his or her assets are gathered, unfinished business affairs are settled once and for all, pending debts, if any are cleared etc. This also includes the most important task which must not be ignored. Which task? Of filing the required tax returns and also distributing the assets as per the deceased individual’s mentioned choice and conditions.
Some of the legal terminology (besides Fiduciary) you must keep yourself updated on is as follows:
Trustor- Also known as the grantor or the settler. The Trustor is that person who simply passes on the property through a trust.
Beneficiary- Is the one who is supposed to inherit the property either immediately or later.
Principal and Income- Principal is the property or worth of either the estate or trust including the interest, rent or dividends derived from the property.
A Fiduciary’s Role in Fiduciary Income Tax
One of the major legal responsibilities of the fiduciary is to correctly pay the financial obligations and related state or federal taxes within a stipulated time span. Basically, before the trust in question is legally passed on to the appropriate heir or heirs. It has been in practice since the year 1993 when the Internal Revenue Service designated the returns related to Fiduciary Income Tax as IRS Form 1041, U.S Tax Return for Both Trusts and Estates. It is the Fiduciary’s role to ensure that all the tax returns are correctly filed and submitted within time.
Who Files For Fiduciary Income Tax?
It is again, the Fiduciary of the estate in question who is supposed to file a Form 1041 and that too if the property exceeds $600 of taxable income. The same applies if the beneficiary happens to be a non residential citizen. The instructions are mentioned in the form on the IRS website.
As per the law, Fiduciary tax returns must be filed by April 15. The Fiduciary is in fact supposed to fulfill additional steps when it comes to filing the returns which are usually not needed of other taxpayers.
For further details and assistance about every tax formality related to Fiduciary income tax, you must visit Fiduciary-Tax at www.fiduciary-tax.com. Mike Habib, an IRS licensed Enrolled Agent, carefully reviews and analyzes all the required documents, makes the necessary corrections, prepares the tax returns from head to toe etc. The company works with its clients all year round to furnish accurate as well as timely filed tax returns.
The fiduciary tax firm of Mike Habib, EA in Whittier California provides fiduciary tax services help for clients throughout Southern California including Norwalk, Santa Fe Springs, Downey, Pico Rivera, Montebello, Hacienda Heights, La Habra Heights, West Covina, La Habra, Brea, Fullerton, Yorba Linda, Cerritos, La Mirada, Lakewood, Anaheim, Santa Ana, Long Beach, Compton, Torrance, Los Angeles, Pasadena, Beverly Hills, Santa Monica and throughout Los Angeles County, Orange County, Corona, San Bernardino County, Riverside County, the Inland Empire, the San Fernando Valley and the San Gabriel Valley.