Executor's Fee

[William767]

My wife (who usually takes a loss on her Sch C) received a six figure fee as an Executor for an estate.  Is there anything we can do to lessen the tax hit?

[RobertB4444]

Unless your wife has additional expenses associated with earning the income then just retirement plans, really.  There were things that she could have done ahead of time - like splitting the fee over a couple of years (assuming the estate even spanned over more than one tax year) or something of that nature.  But now that the self-employment income has been received there isn't a ton.

If she opens a SEP retirement account she can contribute 20% of her net profits to it for 2024 as long as she does it before the due date of the tax return.  That would result in a reduction of the income tax although it will not reduce the self-employment tax.

Retirement plans are a good idea for reducing your tax bill especially if she isn't covered by one at an employer.

@William767 

[M-MTax]

Is your wife a professional fiduciary?

If not, the executor's fee would not be subject to self-employment tax.

[William767]

No.  This is good.  How do we do this on our tax return?

[MonikaK1]

All personal representatives must include fees paid to them from an estate in their gross income. If you aren't in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on your Schedule 1 (Form 1040), line 8. 

You would enter the payment you received as the personal representative of an estate in TurboTax in the Miscellaneous Income section under Other Reportable Income. In the fields provided, enter a brief description, such as "personal representative fees" and the amount.

There isn't a provision in the tax law for the executor to deduct their expenses on their personal return. The expenses can be deducted either on an estate tax return or on the estate's income tax return. See this IRS webpage for more information.

See this TurboTax tips article for more information.

@William767