Level 3

Solved

Does taxable income and tax liability have to be = 0 for a Final 1041 for an Estate?

Forum|Forum|4 years ago
April 28, 2022
3 replies
22 views

My first 1041 return prep:

Final 1041 for Estate:

Do all income and expenses have to be distributed to beneficiary such that taxable income and tax liability to the estate = 0?

If so, does that mean that expenses like taxes and accounting fees will be lost to beneficiary after distribution if not able to itemize?

Thanks.

ProSeries Professional

This topic has been closed for replies.

Best answer by sjrcpa

Yes and Yes

sjrcpaAnswer

Level 15

Yes and Yes

The more I know the more I don’t know.

H

hmosbergeaAuthor

Level 3

Thank you.

sjrcpa

Level 15

You're welcome.

The more I know the more I don’t know.

G

Gregory Gandrud

Level 3

No, the estate can have taxable income in the final year and can pay any tax liability owed. The estate can use the deductions itself in calculating taxable income.

H

hmosbergeaAuthor

Level 3

Mr. Gandrud, you and sjrcpa disagree. So, the only entry on K-1 would be to get a refund of the over payment from last year Line 13A?

BobKamman

Level 15

Why are you calling it a final return when the fiduciary has held on to funds to pay taxes and other expenses? Translucent questions likely lead to opaque answers.

G

Gregory Gandrud

Level 3

Bob, a Final return is one where there is no anticipation of having to file a return in the future (usually because income is expected to not exceed the filing threshold). There is no requirement that there be no assets. A smart fiduciary will move cash into accounts that bear no interest so that he can file a Final return and then pay any remaining taxes and then distribute cash to beneficiaries.

BobKamman

Level 15

I know that’s what many pros do, with intentional disregard to the IRS 1041 instructions:

“Final Return
Check this box if this is a final return
because the estate or trust has
terminated. Also, check the ‘Final K-1'
box at the top of Schedule K-1.”

But do you have some source for the practice? And I don’t believe it is mandatory in a case like this, where the fiduciary does not want K-1s to be issued. If the income was capital gains, it’s quite possible that they would not flow through without the “final” designation.

For a probate estate, the question is often when the court case can be closed even if a residual amount is held for contingent claims. That’s determined under local rules and practice.

Sign up

Login with SSO

Let's get you signed in

Login with SSO