When someone dies, their assets become property of their estate. Any income those assets generate is also part of the estate and may trigger the requirement to file an estate income tax return. Examples of assets that would generate income to the decedent’s estate include savings accounts, CDs, stocks, bonds, mutual funds, and rental property.
Form 1041 is required to be filed if there is:
Any taxable income for the tax year
Gross income of $600 or more (regardless of taxable income)
A beneficiary who is a non-resident alien
If Form 1041 is filed, Schedule K-1s should be generated to report this income to the heirs so they can report their share of this income on their own personal tax returns.
TurboTax Business handles Form 1041 and will also generate the K-1 schedules and figure out how much net income is allocated to the estate's heirs.
TurboTax Business is a Windows-only software program available in CD and download formats.
Estate tax returns are filed for estates worth over $5,450,000 on the date the estate owner died.
The estate's assets and debts at the time of death are declared and tallied. If the estate's value exceeds that amount, estate taxes kick in.
Because of the complexities involved in estate tax returns (including determining what the estate is worth and whether Form 706 needs to be filed in the first place) TurboTax does not support it. Preparing an estate tax return on your own is not something you'd want to attempt anyway.
If you need (or think you need) to file an estate tax return, we strongly recommend that you consult with a CPA, EA, or tax attorney experienced in both estate planning and taxes.