SPEND THRIFT TRUST TAX PREPARATION 1 Stimsons Financial Services, - - PowerPoint PPT Presentation

SPEND THRIFT TRUST TAX PREPARATION

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INDEPENDENT FINANCIAL SERVICES

 Stimson’s Financial Services, Inc.  DBA Independent Financial Services  Richard C. Stimson  9233 County Road 1236  Cleburne, TX 76033-8317  ifs@hughes.net

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RICHARD C. STIMSON

 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

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MY BACKGROUND

 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.

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TAX RETURN PREPARATION

 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

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TRUST INCOME

 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.

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STEPS FOR TRUST TAX RETURN PREPARATION

 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

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INFORMATION NEEDED

 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.

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CHART OF ACCOUNTS

 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.

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WORKING LIST OF INCOME

 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.

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COPIES NEEDED

 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.

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RETURN DRAFT

 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.

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TRUST INCOME

 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

• f interest must be paid – see IRS pubs.

 Any other interest paid to the Trust.

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DIVIDENDS

 DIVIDENDS:

 Dividends reported to the Trust on Forms 1099-DIV

• r K-1’s.

 Dividends received from a C-Corporation that the

Trust is a stockholder.

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CAPITAL GAINS OR LOSSES

 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.

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SCHEDULE E INCOME

 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.

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PARTNERSHIP INCOME

 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.

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BUSINESS INCOME

 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).

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TRUST EXPENSES

 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.

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PAID TAX INFORMATION

 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.

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AUTHORIZED EXPENSES

 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.

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AUTHORIZED EXPENSES

 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.

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AUTHORIZED EXPENSES

 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.

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RECEIPTS FOR EXPENSES

 ** 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 “

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UNAUTHORIZED TRUST EXPENSES

 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.

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UNAUTHORIZED EXPENSES

 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.

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TYPES

 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.

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TYPES

 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.

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TYPES

 Entertainment or meals for non Trust functions or

activities.

 Travel for non Trust functions, activities or not

authorized by the Trust Document.

 Authorized would be travel to a Trust meeting or

needed to investigate new assets. Be sure to maintain copies of telephone records showing contacts, copies of newspaper adds in the area visited, copy of minutes or itinerary of the business meeting, other proof of reason for the travel.

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CHART OF ACCOUNTS INCOME

401 INTEREST 402 DIVIDENDS 403 SCHEDULE C (SOLE PROPRIETORSHIP) 404 SHORT TERM GAINS OR LOSSES 405 LONG TERM GAINS OR LOSSES 406 SCHEDULE E (SUPPLEMENTAL INCOME) 407 SCHEDULE F (FARMING) 408 FORM 4797 GAINS OR LOSSES

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CHART OF ACCOUNTS EXPENSES - MAIN

502 TAXES 503 FIDUCIARY FEES & SERVICES 504 CONTRIBUTIONS 505 ACCOUNTING & TAX PREPARATION 506 LEGAL SERVICES

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CHART OF ACCOUNTS EXPENSES - OTHER



700 SALSRIES



702 EMPLOYEE BENEFITS



703 PENSIONS



710 ENTERAINMENT & MEALS



710 TELPHONE



720 TRAVEL



725 UTILITIES



730 UNIFORMS



735 LAUNDRY & CLEANING



740 TRAINING & EDUCATION



600 ADVERTISING



605 VEHICLE



610 BANK/ INVESTMENT FEES



620 PROFESSIONAL FEES



640 DUES & SUBSCRIPTIONS



645 FEES & SERVICES



650 INSURANCE



665 SUPPLIES & MATERIALS



670 POSTAGE & SHIPPING



680 RENTS & LEASES



685 REPAIRS & MAINTENANCE



690 OFFICE EXPENSES



695 CONTRACT LABOR

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