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Should I file lump inherited IRA payout as income on my personal taxes or do I need to file business taxes in the name of the estate?
My grandfather and father both passed away several years ago. We learned last year that my grandfather had money in an IRA, a share of which was owed to my father. I am the executor of my father's estate. I took a lump payout from my grandfather's IRA through the estate of my father, for which I established an EIN, and the payout was made out to "Estate of [my father's name]". Do I claim that payout as personal income? Or do I need to file another set of taxes as my father's estate? In either case, what forms do I need to fill out?
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Retirement tax questions
Since the payout was to the estate, you as the executor of said estate need to report it on an estate return. The estate will pay any taxes due on the payout, not you personally.
To file an estate return you need TurboTax Business, which is different from TurboTax Home & Business. TurboTax Business is only available for the Windows platform, and is only available as a CD/Download product that you have to physically install on your Windows computer.
TurboTax Business can not be used to file a personal return of any type, because it does not contain the IRS Form 1040. TurboTax Business can only be used to file tax returns for C-Corps, S-Corps, ESTATES, partnerships, joint ventures, and a few other things. But you can not use it to file a personal tax return.
If in the past estate returns were filed, and a "final" return showing the disposition of all assets was filed thus closing and dissolving the estate, you should NOT try to do this on your own. TurboTax Business will NOT be able to handle this situation. You will need to see a tax attorney or CPA to get this reported correctly.
But basically, the estate will pay any taxes due on the payout, and whatever is left over will be distributed to the named heirs and will not be taxable or reportable by those heirs, since it's an inheritance.
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Retirement tax questions
The estate can (and usually does) pass income through to estate beneficiaries, taking a deduction for this Distributable Net Income (DNI) so that the estate does not pay tax on this income. The income passed through to the estate beneficiaries is reported on Schedule K-1 (Form 1041). The beneficiaries then report the income on their individual income tax returns and it becomes taxable to the beneficiaries, usually at a lower tax rate than the estate would pay if the income was not passed through.
In fact, if *any* distributions are made by the estate to the estate beneficiaries during the estate's tax year, as appears to be the case here, the distributions *must* come first from DNI, passing the income through to the beneficiaries.
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Retirement tax questions
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Retirement tax questions
On the estate's income tax return, the IRA income is reported as Other Income (Form 1041 line 😎 and on Schedule K-1 box 5 as Other Portfolio and Nonbusiness Income.
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Retirement tax questions
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