If irrevocable trust did not earn income for 2016, does 1041 tax return need to be filed?

[Skipper17]

Trust started in 2016, only house added, no money.

[Fern · Accepted solution]

The trustee must file Form 1041 if the trust has any taxable income for the year or if it has at least $600 in income for the year even if none of it is taxable. If there is no income at all, you are not required to file a Form 1041.

Consider if the trust has any expenses for the year. Deductions can include expenses for attorney's fees, accountant's fees, trustee compensation, interest, state and local taxes, certain investment losses and bad debts, payment to beneficiaries and expenses for the production or collection of income that exceed 2 percent of the trust's adjusted gross income.

[wbardelli]

My father passed away in March and the bank account was in the name of the trust for a couple months and only had $32.65 interest income.  Do I need to file for only $32.65 income?

[ErnieS0]

No. You do not have to file Form 1041 for $32.65 of income. The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic estate that has:

1. Gross income for the tax year of $600 or more, or
2. A beneficiary who is a nonresident alien.
3. If you held a qualified investment in a qualified opportunity fund (QOF) at any time during the year, you must file your return with Form 8997 attached.

Related Resource:

• Instructions for Form 1041 and Schedules A, B, G, J, and K-1

[jhouse78]

Thank you for this, I have a similar question. Descendent's Trust earned interest income in excess of $600 but was offset by a loss from sales of bonds, the final unsubmitted return shows a loss and no taxes owed.  I understand that I still need to submit 1041, but do I also need to issue K-1s to the beneficiaries who received final distributions (even if no taxes are owed)? 

[DianeW777]

Yes,  file the return and issue the K-1s to the beneficiaries. A return is required when the taxable income received exceeds $600. Likewise you would need to file to show the cost basis of the bonds because the IRS only has the redemption/sales amount. The filing requirement does not take into account the net results of the sale.

If this is the final return you should mark it as such and this will be the last one you need to file.

• IRS Instructions Form 1041

@jhouse78 

[jhouse78]

THANK YOU, @DianeW777  for straightforward answer!

My other question is in using TT Business 2022 for desktop I encountered an issue where the program doesn't understand that I made a 645 Election to use a fiscal year, so it flags all of my bond entries that were acquired in 11/2021 (Date of death) and sold in 2022.  Any experience or ideas for this?  I thought my making the election and sending to the IRS I could use 11/2021-11/2022 for the final tax return.

[RobertB4444]

That is correct, but you need to do a twelve month fiscal year.  When it asks you about the type of year you had you tell it that you had a fiscal year that ended in November.  Then you don't enter any activity for December and you'll be fine.

@jhouse78