Anyone who earned income in the United States is expected to file a federal income tax return every year. Whether the individual actually owes tax or not is determined by the type of income they earned and what deductions are available to the taxpayer. The issue may become murky to trust grantors and beneficiaries. Will your Minnesota Trust owe income tax? Probably, but it depends on several factors.
Does your trust pass income and residency tests?
According to the Minnesota Department of Revenue, a trust may owe income tax under the following conditions:
- The trust has earned at least $600 of gross income that may be assigned to Minnesota; or
- At least one of the beneficiaries is a nonresident alien.
If a trust is required to pay Minnesota income tax, the trustee will file Minnesota Form M2, Income Tax Return for Estates and Trusts (Fiduciaries) and serve copies on beneficiaries.
How is income “assigned” or “allocated” to Minnesota?
Generally, income earned from Minnesota sources is reported on the Minnesota income tax form. This includes intangible and tangible income.
Income from non-Minnesota sources might include income, profits, and gains earned from property located outside of Minnesota. This type of income generally is not included as gross income for a Minnesota trust.
Is there any way to lower a trust’s income tax?
Direct expenses may be deducted from the trust’s gross income. Indirect expenses are allocated to the class of income to which it relates. Expenses related to non-Minnesota sources typically are added back into the trust’s gross income.
Tax Law is Complicated. So Are Trusts.
If your trust earned income from Minnesota sources, it probably will owe income taxes. However, the issue is complicated. Deductions could be available and there could be questions about whether income was generated in Minnesota or not. Have experienced attorneys review your trust and assist with tax planning. The attorneys at Virtus Law have the experience and skills to analyze your trust and tax issues. Contact us by calling 612.888.1000 or by emailing us at info@virtuslaw.com. Our main office is in Minneapolis, with other offices located in Maplewood, Cambridge, Edina, Mendota Heights, and Red Wing.