If you’re an ‘executor‘ of an estate and wondering what to file with the IRS, you’ll probably want to add 1041 tax form instructions to your reading list. In most cases, executors will need to submit Form 1041 with the IRS, which covers income tax earnings after the owner’s death (referred to as the “decedent” from that point on) but before the ‘beneficiaries‘ are assigned the estate.
What Is a 1041 Tax Form?
Form 1041 is an IRS-required form that a beneficiary of a trust or estate must complete to declare any income. Specifically, this records any income that the beneficiary has received after the estate owner dies but before the beneficiary collects the assigned asset. This is not to be confused with Form 706 which is used for filing an estate tax return.
How Is it Different From a 1040 Tax Form?
An executor of an estate is required to file Form 1040 on behalf of the decedent as a final tax return. This is distinguishable from a Form 1041 which concerns income earned after the decedent’s passing. If you are legally declared the executor or ‘fiduciary‘ of an estate, you might also be obligated to file a Form 1041 for the decedent’s estate.
Who Has to File Form 1041?
The fiduciary of the trust or estate is obligated to file Form 1041 if the adjusted gross income of the underlying asset is greater than $600. They are required to report any income tax liability in addition to any losses or gains.
They must file specific forms for the type of gains or losses that the asset has experienced since the decedent’s death. For example, Schedule D reports capital gains or losses while Schedule K-1 declares a beneficiary’s share of income gained.
Who Pays for Form 1041 Income Tax?
The estate is not required to pay for the earned income tax where that liability accrued after the decedent’s passing and the beneficiary’s interest had been distributed. Before the decedent’s death, based on the rules outlined in the 1041 tax form instructions, the estate is required to pay for the income tax earned.
As such, if the beneficiary had been assigned the asset, they are responsible for paying the tax once they have received their share of the asset. Notably, every beneficiary will be given a Schedule K-1 Form 1041 which indicates the amount and type of income to report on their 1040.
When Do You Need to File Form 1041?
It is essential to note that the estate year may not coincide with the calendar year. Specifically, the estate year traditionally starts on the day of the decedent’s death and finishes on December 31st of the same year. An exception to this is when the executor requests that the year be counted as a ‘fiscal’ year.
This enables the executor to count the year as starting from the date of the decedent’s death and ending on the last day of the month before the decedent’s one year anniversary of death. This gives the executor up to 12 months in which to file their taxes after the decedent has passed away.
For example, Mark passed away on May 1 and his assets were transferred to his beneficiaries on November 15 of that year. Before the transfer, the assets added $2,000 in gains. Because this is more than the $600 exemption for filing, Mark’s executor is required to file a Form 1041. If a traditional filing year is chosen, the year begins from May 1 and ends on December 31 of the same year. If a fiscal year is preferred, then that begins on May 1 and ends on April 30 of the following year.
1041 Tax Form Instructions: How to Complete the Form
This three-page form must be completed by the executor or administrator of the estate. Schedule G is used on the second page to tally the total amount due for taxes. The remainder of the tax form consists of charitable donation disclosures and what will be given to the beneficiaries.
The deceased and their estate are two separate entities for tax purposes. As such, a separate tax identification number (TIN) is needed for the estate. Furthermore, for income tax purposes, an employer identification number (EIN) is required for the estate as well.
This is what you will report in the general sections of a 1041 tax form:
- Income. Income is reported on lines 1 through 9 of the form which includes dividends, capital gains, and rents
- Deductions. Deductions such as executor costs are reported from line 10 to 22 so they can be subtracted from the reported gross income
- Tax and payments. This amount due to the IRS is derived from a completed Schedule G
Still Need Help With 1041 Tax Form Instructions? Speak With an Expert Today
Taking on the role of executor comes with often unexpected new responsibilities, including how you file your taxes. If you need help with 1041 tax form instructions, speak to a professional today to learn your best options