Can I do my parents final estate taxes for year 2023 on TurboTax online? They have just 1 INT 1099 income for that year.

[M-MTax]

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@guywong wrote:

Several posts here suggested to have the estate pay the tax due on the $2,900 1099-DIV income.  Treas. Reg. §1.662(a)-2 specifically prohibits that as the income was distributed in 2023.  But then it could be totally irrelevant.........

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Yes, that is, indeed, totally irrelevant given the the length of time the estate was in probate as the fees and expenses incurred are almost certain to exceed the relatively small amount of dividend income. 

The best course of action would to be to simply file the 1041 which should wind up with zero tax liability.

[thisblows]

What taxes and fees are you talking about for the estate?  We were told from the beginning we could not touch the money until the very end when it would be divided.  Which means the estate couldn't pay for anything. So I paid all legal and other expenses for the estate from 2020-2023 out of my own pocket.  I was paid back by the estate before the money was divided. 

Was I able to write any expenses off on my personal taxes for paying the estate bills?  Could I amend my taxes to do so?  

I am looking for an accountant now, but find way more "Tax Prep" services than CPA's online.  And very few Enrolled Agents.  This is definitely way above our heads so a professional is needed.  Just not sure what type is best.I guess it was too much for H&R Block as well.  They never mentioned anything but the 1099 forms the estate received.

Lastly, since we didn't know about this last 1099, what started the search was a tax bill from the state.  With large penalties and interest.  I called them directly and told them the estate was now closed and had proper documentation.   The state tax person on the phone said ok and would wipe away the bill.  They sent us a letter saying the "matter was closed", but that's all.

IF we figure this last 1099 situation out with the federal taxes, will the state then come back at us?  Even though we have a letter saying the matter was closed.  She did not put a balance of $0.00 on the letter, even though I asked her to do so.  

This is getting insane!!  Thank you all for your help.

[M-MTax]

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@thisblows wrote:

Was I able to write any expenses off on my personal taxes for paying the estate bills?  Could I amend my taxes to do so?  

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No, but the estate could deduct the expenses from the $2900 in dividend income on its 1041.

[thisblows]

OK, probably talking to myself, but I'll update this anyhoo.  We found a highly rated CPA online with a Masters.  100+ reviews, 4.9 rating.  I brought all of my paperwork and we went over everything.   BUT, he said he would be way too expensive to fix this ridiculous H&R Block error.  He said this was basic accounting 101 and they should get it right.  Soooo, we went back to H&R Block.

HRB did find a final 1040 return in their system for my Mom & Dad for 2020 (Year they both died) so they said we are done with that.  What is left is to amend 2021 and 2022 tax years for the estate, and include all the expenses for the estate.  Then file 2023 with the $2900 DIV and make that the final year estate return.

However, when I asked what all expenses could the estate write off, he could not answer.  He said we have to find that out and then bring only legitimate expenses in.  They don't want to go through what is and what is not allowed.  I don't know really what to say about this.  It's become very daunting for us.  With no help from the CPA or HRB.

The CPA said minimum $2500 for 2021 and 2022 amendments and then another $1000 for 2023.  I guess I'm glad he was honest about charging too much.  But HRB is almost no help.  

Oh, one last thing.  The CPA said for the stocks, we would have to pay taxes on any stock that gained between date of death and day they were sold.  But this is an insanely daunting task to figure it out, now that the account has been closed.  Will the IRS figure this out on their own?  How would they do this?  I can't fathom someone at the IRS going stock by stock and checking price at death and when sold.  The brokerage account does not keep track of this specific price difference and calculation, so we'd have to do it manually.  

Not sure where we go from here.

[M-MTax]

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@thisblows wrote:

The CPA said minimum $2500 for 2021 and 2022 amendments and then another $1000 for 2023.

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2021 is basically time barred and 2022 will be time barred early next year (assuming the original returns were timely filed). As a result, you won't get any kind of a refund for 2021 for the unreported expenses, nor will you get one for 2022 unless you act in the 6-7 months.

Even for 2022, you have to consider whether it's worth doing after taking the prep fee into account. 

[guywong]

FWIW, I asked Google Gemini this question, "when can a cash basis estate deduct expenses advanced by the executor personally that are reimbursed years later when probate closes?"  The answer is below and I concur.

For a cash basis estate, an expense advanced by an executor and reimbursed years later is deductible in the year the estate actually pays for it. The cash basis accounting method mandates that expenses are deductible when they are paid, not when they are incurred. 

Key IRS guidance

• Deduction timing: A cash basis estate deducts expenses in the tax year they are actually paid. This means that even if the executor paid for an expense years ago, the estate can only take the deduction in the year it reimburses the executor.
• Documentation is crucial: The executor should meticulously track all advanced expenses. Proper documentation, including dates, amounts, and purposes, is necessary to justify the reimbursement and subsequent deduction.

[M-MTax]

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@guywong wrote:

For a cash basis estate, an expense advanced by an executor and reimbursed years later is deductible in the year the estate actually pays for it.

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That is elementary and has been the case ad infinitum; no need for Google Gemini. Cash basis taxpayers deduct expenses in the year they are paid and recognize income in the year it is received, whether an individual, trust, estate, corporation, or partnership.

The overarching question here, I suspect, is exactly which expenses can be deducted by the estate (i.e., not all expenses incurred are deductible).

[guywong]

• Yes, "Cash basis taxpayers deduct expenses in the year they are paid and recognize income in the year it is received." is taught in Accounting 1A.  But then too many people have brought up amending prior years tax returns.  Why?  These people seem to be seeing the trees and not the forest.

Of course, we's not certain that the OP's 1041 has elected to be taxed on a cash basis, she hasn't said anything about that.  In my over 45 years of public accounting practice, however, I have never seen an estate using the accrual method of accounting for tax reporting purpose.

Assuming the OP's 1041 uses cash method, she can deduct, at a minimum, all the legal and accounting fees paid/reimbursed in 2023.  Fairly sure that those fees would wipe out the $2,900 portfolio income.

[M-MTax]

Correct and there's actually little rationale for using accrual for an estate; it's actually somewhat absurd in most all cases.

Indeed the legal, accounting, and perhaps fiduciary fees should more than wipe out the $2,900 in dividends received.