Thursday, November 30, 2017

More about Estate tax return filing -1041

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More about Estate tax return filing :

Estate/trust-1041:- An estate or trust can generate income that must be reported on Form 1041, United States Income Tax Return for Estates and Trusts. However, if trust and estate beneficiaries are entitled to receive the income, the beneficiaries must pay the income tax rather than the trust or estate.

·   IRS Form 1041 is an income tax return for estates and trusts, similar to Form 1040 for individuals.
·    If you are the executor for an estate, you may be required to file Form 1041 – U.S. Income Tax Return for Estates and Trusts.
·         Form 1041 must be filed for the person who died in addition to any personal income tax return you need to file on his or her behalf.

For example, say an unmarried person died on June 30. As the executor, you file a final personal tax return for that person for the first half of the year.

·  After death, everything that person owned becomes part of his or her estate. You file Form 1041 for the estate for the remainder of the year.
·         The income tax return is for income and other tax items on an estate before it is settled.
For example, say a person has a rental property and money in a bank savings account. After the person dies, rental income received and interest earned on the savings account are both income to the estate.
·         Estate tax is a tax on money in the estate, before it is transferred to heirs.
·         For 2017, the estate tax only applies to estate of over $5.49 million – meaning it’s not an issue for most of us.

What kinds of trusts require someone to file Form 1041?

You generally must file Form 1041 if are a trustee for a domestic trust, and that trust has gross income of $600 or more for the year.
You also must file if the trust has any taxable income (gross income less deductions), or if the trust has one or more beneficiaries who are nonresident aliens.
Some common types of trust are simple trusts, complex trusts, qualified revocable trusts (QRTs), grantor type trusts, charitable remainder trusts, and pooled income funds.

1.     What is included in estate income?
Any income that would have belonged to the deceased person or that is earned by assets in the estate is considered estate income.
Common examples of estate income include rents from real estate in the estate, salary that wasn’t paid to the deceased person before death, or interest on an estate bank account.

2.      The following items reduce estate taxable income:
·         A $600 exemption.
·         Distributions you are required to make to beneficiaries (but not discretionary distributions).
·         Executor’s fees, if the estate pays you for your services. You report the amount you receive on your tax return.
·         Professional fees, including amounts you pay to attorneys, accountants, and tax preparers.
·         Administrative expenses, such as court filing fees.
·         Miscellaneous deductions to the extent they exceed two percent of the estate’s adjusted gross income. Miscellaneous deductions for an estate include investment advice, safe deposit box rentals, office supplies, postage, and travel expenses.

Do not deduct the deceased person’s medical or funeral expenses on Form 1041.

3.     Schedule K-1 for Beneficiaries

In addition to Form 1041, you may need to file Schedule K-1 if you are required to distribute income to beneficiaries.
Schedule K-1 shows each beneficiary how much he or she received during the tax year. It does not include amounts the beneficiary received at the discretion of the executor.
The Tax Act program automatically creates Schedule K-1s for you.

You must attach all copies of Schedule K-1 to Form 1041 when you file.