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New Member

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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Level 15

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?

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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10 Replies
Highlighted
Level 15

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?

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.

View solution in original post

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Level 15

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?

The estate return to which Carl is referring is an estate income tax return, Form 1041.

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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New Member

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?

Thank you both, this clarifies things. Out of curiosity, do I (as the estate executor) have to issue a W2 to myself (as an individual) or anything like that?
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Level 15

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?

As executor, you must prepare Form 1041 Estate Income Tax Return (TurboTax Business) which will include a Schedule K-1 (Form 1041) for each beneficiary receiving a distribution from the estate and give copy of each beneficiary's Schedule K-1 to the corresponding beneficiary.  As beneficiary,  you'll enter the Schedule K-1 on your individual income tax return using an individual version of TurboTax that supports the entry of Schedules K-1.

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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Level 15

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?

Every deceased person leaves an estate, and the estate's bank account to consolidate funds is entitled "Estate of <decedent>". That doesn't mean that everybody has to file an estate tax return.
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Level 15

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?

Reading thorugh this again, it appears there was an IRA payment to the grandfather's estate. Then an estate payout form the grandfathers estate, that was paid to the father's estate, and from the father's estate it's distributed to the heirs. Have I complicated it enough now? 🙂
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Level 15

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?

The IRA distribution was paid was to the *father's* estate, not the grandfather's estate.  Apparently the father was a (the) designated beneficiary of the grandfather's IRA, so the grandfather's IRA was not part of the grandfather's probate estate.  If the IRA was not transferred to an inherited IRA with the father as beneficiary and successor beneficiaries named, the default provisions of the grandfather's IRA agreement apparently required the IRA to be distributed to the father's estate upon the death of the father.  (My assumption based on the payment having been made to the father's estate is that the father passed after the grandfather.)
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Level 15

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?

If a deceased person gets a check today payable to "Estate of ..." but the estate has been closed for five years, what happens?
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Level 15

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?

Under those circumstances, it may (probably will) be necessary to reopen the estate.
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Level 15

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?

.......and the hornet's nest has been disturbed. 🙂