topic " Do I understand this correctly?" Yes. Making distribut... in Retirement tax questions

1041 Income Distribution Deduction

mikebarnes-cobra — Wed, 05 Jun 2019 00:07:19 GMT

I am a first-time filer of a 1041 for a relative's estate and am confused about the Income Distribution Deduction. My relative died in 2016 and I, as fiduciary, I have not yet distributed any funds to the beneficiaries.

According to IRS Publication 559 (page 19), the income distribution "deduction is allowed to the estate even if the personal representative does not make the distribution until a later year." This sounds exactly like my situation because I will be making the distributions to the beneficiaries in 2017 as soon as I settle any taxes owed for 2016.

On the 1041 form, I see line 18 (where the income distribution deduction is entered) also mentions attaching K-1 Schedules. Do I attach 2016 K-1s even though I will be making the distributions in 2017? Or do I submit the K-1s next year when I file the 2017 1041 (if necessary)?

From what I've learned, it seems the purpose of the Income Distribution Deduction is to pass the tax liability onto the individual beneficiaries which would likely reduce the amount of tax owed than if it were paid by the estate. Do I understand this correctly?

Any other relevant information or suggestions will be greatly appreciated.

In which month did your relative pass away? You have the...

Anonymous_ — Wed, 05 Jun 2019 00:07:20 GMT

In which month did your relative pass away? You have the option to file a fiscal year return for an estate.

Relative passed in January 2016.

mikebarnes-cobra — Wed, 05 Jun 2019 00:07:21 GMT

Relative passed in January 2016.

Unfortunate in more than one sense because adopting a fis...

Anonymous_ — Wed, 05 Jun 2019 00:07:22 GMT

Unfortunate in more than one sense because adopting a fiscal year doesn't work (it would end on 12/31/16 anyway) and you are past the 65-day (Section 663(b)) period for making distributions after the close of the tax year.

However, keep in mind that if the will (or trust instrument) requires that income be distributed currently, then the income that accrued in 2016 is treated as having been distributed to the beneficiaries even if it was not actually distributed.

What exactly does "distributed currently" mean? I've see...

mikebarnes-cobra — Wed, 05 Jun 2019 00:07:24 GMT

What exactly does "distributed currently" mean? I've seen that phrase before and have been uanble to figure out the exact meaning. Is that specified in some wills and not others?

Thanks for all your replies.

Yes, its general meaning is during the entity's tax year...

Anonymous_ — Sun, 22 Dec 2024 21:25:58 GMT

" Do I understand this correctly?" Yes. Making distribut...

Anonymous_ — Sun, 22 Dec 2024 21:25:31 GMT

But would I send 2016 or 2017 K-1s? I believe I read som...

mikebarnes-cobra — Wed, 05 Jun 2019 00:07:28 GMT

But would I send 2016 or 2017 K-1s? I believe I read somewhere that distributions must be done in the first 65 days of the following year (although I did not see this mentioned in the 1041 instructions).

The election is in the instructions here -->