"My father passed away in April 2016. Do I only include activity on the
final 1040 return through that date or do I include through the end of
the calendar year 2016?"
Basically you only include the actual activity up to the date of death. Pub 559:
"Income To Include
The
decedent's income includible on the final return is generally
determined as if the person were still alive except that
the taxable period is usually shorter because it
ends on the date of death. The method of accounting regularly used by
the
decedent before death also determines the income
includible on the final return."
and
"Cash Method
If the decedent accounted for income under the cash method, only those items actually or constructively received before death
are included on the final return.
Constructive receipt of income.
Interest from coupons on the
decedent's bonds is constructively received by the decedent if the
coupons matured in
the decedent's final tax year, but had not
been cashed. Include the interest income on the final return.
Generally, a dividend is considered
constructively received if it was available for use by the decedent
without restriction.
If the corporation customarily mailed its
dividend checks, the dividend was includible when received. If the
individual died
between the time the dividend was declared
and the time it was received in the mail, the decedent did not
constructively receive
it before death. Do not include the dividend
in the final return."
"Must I complete a form 1041? How does it work with Form 1040? "
The Form 1041 is the "income tax" return of the estate itself until the estate is closed out. Per Pub 559:
"Income Tax Return of an Estate— Form 1041
An
estate is a taxable entity separate from the decedent and comes into
being with the death of the individual. It exists
until the final distribution of its assets to the
heirs and other beneficiaries. The income earned by the assets during
this
period must be reported by the estate under the
conditions described in this publication. The tax generally is figured
in
the same manner and on the same basis as for
individuals, with certain differences in the computation of deductions
and credits,
as explained later"
and
"Filing Requirements
Every
domestic estate with gross income of $600 or more during a tax year
must file a Form 1041. If one or more of the beneficiaries
of the domestic estate are nonresident aliens,
the personal representative must file Form 1041, even if the gross
income of
the estate is less than $600."
"Can 1041 be completed on Turbo Tax? "
It can, but only by purchase of the TurboTax Business, (NOT "Home & Business"), product.
It generally behooves you to finalize the estate as promptly as possible to minimize the income tax reporting issues. For simple estates this generally involves notifying payers of income to the deceased - Social Security, retirement plans, etc. - and changing the title to inheritable assets into the name or names of the beneficiaries.
Tom Young
