Hyden, Miron & Foster, PLLC Law Blog

Wednesday, October 9, 2019

Estate Tax Returns

The executor of an estate is tasked with filing tax returns for the estate, if necessary. The estate of a deceased individual is considered to be a separate legal entity for purposes of federal income tax. If an estate has a gross income of $600 or more for the tax year or there was a beneficiary of the estate who is a nonresident alien, the executor must file Form 1041, a federal income tax return for the estate. An estate may generate income from things like rental property, interest on financial accounts that are part of the estate.

If estate assets are distributed quickly, there may be no need to pay for income tax because there was not enough time for the estate to generate any taxable income. If income is distributed to beneficiaries, they will be responsible for paying income tax on it. Once the tax returns are prepared and submitted, the executor must give each beneficiary a Schedule K-1 form which will show how much the beneficiary received that tax year. If the estate owes income tax, the executor is in charge of paying the income tax from estate assets.

How Do You Prepare Estate Tax Returns?

Form 1041, the income tax return form you use for estates, is much like the personal income tax returns everyone files annually. The “Decedent’s Estate” box at the top of the form must be checked and the form must be filed under the estate’s name and taxpayer identification number (TIN). The form will include a report of the income and gains of the estate as well as any losses or deductions the estate is taking.

All estates are entitled to a $600 exemption. Other deductions include distributions made to beneficiaries of the estate. Any payments of income from the estate to beneficiaries are deductible. Filling out Schedule B is the way to calculate the deduction amount and the deduction will determine the amount that will be taxable for the beneficiaries. The other major kind of deduction that the estate can relate to expenses of administering the estate. For instance, the estate may have paid you as an executor for carrying out your duties. The estate may deduct these payments. You as the executor, however, will have to report the fees as taxable income on your own personal income tax return.

Additionally, the estate may have paid for the assistance of experts such as attorneys or accountants. A reasonable amount for paying for these services is deductible for the estate. There are also expenses such as court filing fees and publishing probate notices in local newspapers that are also considered deductible estate administration costs.

Tax Attorneys You Can Count On

The executor of an estate must file an income tax return for the state within 12 months after the death of the decedent. Tax preparation for the estate, like any tax preparation, must be handled with care and attention to detail is key. Let the experienced tax attorneys at Hyden, Miron & Foster, PLLC handle these tax issues for you and you can be confident knowing things were done right. Contact us today.

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