Pooled income funds are a way for individuals to take advantage of tax deductions available to charitable trust creators when they do not have $100,000 to set up a trust. These funds allow a multitude of people to donate as little as $5,000 to an existing trust. The trust then pays you income based on the fund's earnings and amount of your contribution. The Internal Revenue Service (IRS) taxes any income received from a pooled fund as regular income.
1. Inspect the Form 1041 Schedule K-1 sent from the fund manager. At the end of each tax year, the manager sends this form to notify you of your earnings. Compare the amount listed on the schedule with your records to ensure that the amounts match.
2. Include your interest income from the schedule on Line 8a on your Form 1040. Report ordinary dividend income on Line 9a and qualified dividend income on Line 9b of your return. If you are reporting any capital gains from the income, you must file Schedule D when you file your return. If the income is dividend income, the fund manger send you a Form 1099-DIV. Managers report ordinary dividends -- those not subject to capital gain tax -- in Box 1a of the form and qualified dividends in Box 1b.
3. Complete your tax return listing any other income and deductions to calculate your total tax owed. File the Schedule K-1 with your return.
- If the amount listed on your Schedule K-1 differs from your records, contact the fund manager to discuss the discrepancy. If the amount from your records is correct, the manager must issue you an amended form.
- You can adjust your wage withholding by filing a new Form W-4 with your employer to have additional taxes withheld from your wages to prepay your taxes on your fund income.
- Depending on the amount of income, you might owe additional tax at the end of the year. The IRS will assess penalties for any unpaid balances that are more than $1,000.
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