Electing Small Business Trust
An ESBT can have more than one beneficiary and the income can be distributed or accumulated. This creates many tax planning opportunities, such as creating a trust for the benefit of minor children, where one trust is created for a couple children; instead of creating separate trusts for each child. More importantly the trust can accumulate the income rather than distributing substantial amounts of cash to a minor.
In order to have the flexibility of ESBT, the trust is taxed on the income related to the S corporation at the highest individual tax rate on ordinary income and 20% on long term capital gains. The ESBT cannot purchase the S corporation stock. The ESBT can hold property other than the S corporation stock and in such a case the reporting is similar to QSST where the trust is bifurcated.
The trustee of the ESBT signs the shareholder consent on Form 2553 on behalf of the ESBT. If the ESBT is a grantor trust then the trustee and deemed owner would sign the shareholder consent on Form 2553. Similar to the QSST, a special election is also required for an ESBT. The separate election must be made within 16 days and two months from the date the stock is transferred to the trust or 16 days and two months from the beginning of the first S year. The separate election is filed with the corporation's IRS service center. If it is a newly electing S corporation, then the separate ESBT election can by attached to the Form 2553.
Related Products
August 11, 2010
Price: $219.00
August 25, 2010
Price: $219.00