1041 deductible attorney fees

Forum|Forum|7 years ago
June 1, 2019
4 replies
11 views

1041 us income tax return for estates and trusts: If a trustee paid an attorney to complete trust income tax forms; can the trustee deduct the attorney's fees on the tax return? Also, does the trustee need to have the attorney complete a W-9? (The trustee received the bill from the attorney after the 2015 tax forms were submitted. So can the trustee deduct the fees on the 2016 income tax forms?)

Lisa995

Alumni - Champ

Are you asking if the fees are deductible on the trust return or on the trustees personal return?

♪♫•*¨*•.¸¸♥Lisa♥ ¸¸.•*¨*•♫♪

dajakaro

Level 2

On the trustees personal return?

Jeromeallenkellner

Level 2

Can professional fees be accrued on the final Form 1041?

Anonymous_

Level 15

What do you mean by "accrued on the final form..."?

Are you asking whether the fees can be deducted on the final return before they are paid?

ScruffyCurmudgeon

Alumni - Champ

Legal fees to administer the Estate or Trust are legitimate deductions on the Form 1041. They are deductible in the year of the expenditure, so if paid in 2016, deductible in 2016. While you can always issue a Form 1099-MISC for payments made to a vendor [the attorney is not your employee], in my experience, I've never seen a Trustee issue a tax information report on payments made for legal services.

[2018 Tax Year Update] The following statement remains true however the TCJA tax law of 2018 eliminated the deductibility of legal fees on a personal 1040, so beware!
In the Final Year of the Trust or Estate, if the fees and other deductibles exceed the taxable income, the excess deductions can be passed through to the Beneficiaries for their use on their own Form 1040s. [note 2018 update]

For how to enter the tax accounting of executor fees paid see the following for the details.

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See the attached multipage PDF that walks you through the process in a Final Year of a Form 1041 allocating income, excess deductions, and other distributable amounts to the beneficiary.

Executor Fees go to Trustee Fees in Deductions
Generally such fees are allocable to all types of income
In Final Year, even if not previously, distributions are made to the beneficiary or beneficiaries
Unless the Will or Trust provided for explicit amounts to go to a beneficiary, it is usually by percentage.
One beneficiary = 100%
Note that negative distributable amount of "income" meaning that distributable amounts are of the excess deductions
Distributable amounts to go to K-1 Worksheet
K-1 Worksheet - note Box 11 Line A
Actual K-1 to be reported to IRS and beneficiary - note box 11 code A

2018 UPDATE - BEWARE THAT MISCELLANEOUS AND OTHER DEDUCTIONS ARE DISALLOWED 2018-2025) Excess Deductions occur only upon termination of the entity during the last tax year of the trust or decedent's estate, and when the total deductions (excluding the charitable deductions and the exemption available to the entity) are greater than the gross income for the entity for the year. These 'excess deductions' are reported in Box 11 of the Schedule K-1 (Form 1041) with a code of 'A'. Generally, a deduction based on a Net Operating Loss carryover is not available to the beneficiary as an excess deduction. However, if the final year tax return (Form 1041) filed by the trust or estate is also the final year in which the NOL carryover can be taken by the entity, then the NOL carryover may be taken as an excess deduction. For additional information see: Publication 536 - Net Operating Losses (NOL's) for Individuals, Estates or Trusts, also see 26 CFR 1.642(h)-4 - Excess deductions on termination of an estate or trust

If this posted response is useful to you, please click on the upraised hand in the lower left of this post. Thank you. Scruffy Curmudgeon--PFFM/ IAFF, retired FireFighter/Paramedic - Locals 718/30, Veteran USAR O3 AIS/ASA '65-'67. NOT INTUIT EMPLOYEE . USAR 64-67 AIS/ASA MOS 9301 - O3 . - Just donating my time. **Say Thanks by clicking the thumb icon in the lower left corner -it means nothing but makes those than answer feel wanted.

trustee2015Author

Level 2

Thank you very much for the quick response.

ScruffyCurmudgeon

Alumni - Champ

See the attached multipage PDF that walks you through the process in a Final Year of a Form 1041 allocating income, excess deductions, and other distributable amounts to the beneficiary.

Executor Fees go to Trustee Fees in Deductions
Generally such fees are allocable to all types of income
In Final Year, even if not previously, distributions are made to the beneficiary or beneficiaries
Unless the Will or Trust provided for explicit amounts to go to a beneficiary, it is usually by percentage.
One beneficiary = 100%
Note that negative distributable amount of "income" meaning that distributable amounts are of the excess deductions
Distributable amounts to go to K-1 Worksheet
K-1 Worksheet - note Box 11 Line A
Actual K-1 to be reported to IRS and beneficiary - note box 11 code A

Excess Deductions occur only upon termination of the entity during the last tax year of the trust or decedent's estate, and when the total deductions (excluding the charitable deductions and the exemption available to the entity) are greater than the gross income for the entity for the year. These 'excess deductions' are reported in Box 11 of the Schedule K-1 (Form 1041) with a code of 'A'. Generally, a deduction based on a Net Operating Loss carryover is not available to the beneficiary as an excess deduction. However, if the final year tax return (Form 1041) filed by the trust or estate is also the final year in which the NOL carryover can be taken by the entity, then the NOL carryover may be taken as an excess deduction. For additional information see: Publication 536 - Net Operating Losses (NOL's) for Individuals, Estates or Trusts, also see 26 CFR 1.642(h)-4 - Excess deductions on termination of an estate or trust