If you are connected to an estate, trust or bankruptcy estate, or if you receive a Schedule K-1 from a Form 1041, you need to file Form 1041.
Here are some answers to common questions you may have about Form 1041, U.S. Income Tax Return for Estates and Trusts.
Why do I need to file Form 1041?
If you are the executor of an estate owned of someone who has died, you either need to file Form 1041 or make sure that it is filed. Note, Form 1041 is not used to calculate the estate tax, which is determined before the remainder of the estate is transferred to heirs.
Why did I receive a Schedule K-1 from a Form 1041?
You receive a Schedule K-1 from Form 1041 if you are a beneficiary of an estate or trust.
What time period does Form 1041 cover?
Form 1041 is only used to report income and expenses after a person dies and until the estate is settled. It does not cover the part of the year in which the person was still alive.
What’s the difference between Form 1041 and an estate tax return?
Form 1041 is an income tax return of the estate while it exists. If the estate is open for multiple tax years, more than one Form 1041 will need to be filed.
The estate tax return, on the other hand, is a one-time return that calculates the estate tax, if any, on the total estate.
What types of income is reported on Form 1041?
Any income that the deceased person receives after death is considered to be estate income.
For example, if a person owns rental real estate, they should continue to receive rent payments after death. Those payments are income to the estate.
Other sources of income after death include salary that is paid after death, and interest and dividends on the deceased person’s stocks, bonds, and savings accounts.
What taxpayer identification number do I use on Form 1041?
The online application refers to an “Employer Identification Number” – don’t let that confuse you. Even though you’re not an employer, the application process is the same.
Is the estate tax year always a calendar year?
The tax year begins on the date of death and ends on the last day of a month of the executor’s choosing. So, the estate tax year is not likely to begin on January 1, but it may end on December 31 if the executor chooses.
The executor can file the estate’s first income tax return at any time up to 12 months after the date of death.
What exemptions and deductions are allowed on Form 1041?
The following items reduce an estate’s taxable income:
- A $600 exemption
- Required distributions to beneficiaries
- Executor’s fees if the estate pays the executor for his or her services
- Professional fees, such as payments to attorneys, accountants, and tax preparers
- Administrative expenses like court filing fees
- Miscellaneous deductions that exceed 2 percent of the estate’s adjusted gross income, including safe deposit box rentals, investment advice, postage, office supplies, and travel expenses
The deceased person’s medical or funeral expenses should not be reported on Form 1041.
What do I do with the Schedule K-1 I received?
Schedule K-1 (Form 1041) Beneficiary’s Share of Income, Credits, Deductions, etc. reports the amount that you, the beneficiary, received from the estate during the year, not including discretionary amounts.
You report the information from your Schedule K-1 on your income tax return. To enter it in TaxAct, create a Schedule K-1 for Estate and trust income (Schedule K-1) in Other Income.