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

[thisblows]

They were deceased end of 2020. We did not realize there was a few months of interest in year 2023 until now. This would be their final year tax return for their estate.

[xmasbaby0]

No.    Online software can only be used for a 2024 return; for a 2023 return you need desktop download software that can only be used on a full PC or Mac.

An estate return must be prepared using TurboTax Business on Windows.  TT Business does not run on a Mac; some users have been able to use it on a Mac if they also have a Windows emulator like Parallels.

https://turbotax.intuit.com/personal-taxes/past-years-products/

You may also want to explore purchasing the software from various retailers such as Amazon, Costco, Best Buy, Walmart, Sam’s, etc.

A 2023 return must be filed by mail; it cannot be e-filed.

[fanfare]

Are you amending or filing?

If the total income was no more than $600, you don't have to file estate tax.

@thisblows 

[thisblows]

Unfortunately it's about $2900.  It was sent to their house in 2024 when no one lived in the house.  So got lost in the shuffle.  H&R wants $400 to do a simple final estate tax return with one $2900 input.  Crazy.

[thisblows]

Is there anything special about an estate "final tax return" for a deceased person?  Or like mentioned above, the "Business" TurboTax should do just fine?

[guywong]

Just want to clarify that your parent's estate need to file a "Fiduciary" tax return, Form 1041, for the $2,900 interest income, not an "Estate" tax return, Form 706.  You probably have more luck buying the 2023 TurboTax Business software from eBay. 

Since it's a "final" Form 1041 tax return, the $2,900 income, net of any deductions and the $600 exemption, will be distributed to the beneficiaries via a K-1 form and every heir will have to amend his/her 1040 tax return.

And don't forget the state fiduciary tax return.  Good luck!

[thisblows]

Thank you for the reply.  I'm not sure TurboTax has all of these features to complete this and since I used an accountant to do my taxes for 2023, it looks like it's best to use them again.  For an insane amount that they will charge, even on this.

Can I take the numbers from what my personal accountant did in 2023 and plug into TurboTax with this additional income?  Or is it more complex than that?  I really don't want to use the accountant.

Very much appreciate your help.

[guywong]

You mentioned the estate was "closed" in March 2023 and that you have had a lawyer and an accountant involved.  With that in mind, assuming you have an ongoing relationship with your accountant, s/he should have inquired about preparing a "final" 2023 fiduciary tax return, Form 1041, given the size of the estate.   I assume the 2022 Form 1041 was NOT marked "Final"?

Your lawyer/accountant/financial adviser were not exactly technically correct when they said none of the money you and your sibling received was not taxable.  The corpus (principal) is not subject to income tax, but the income is.  In the "Final" year, the estate's income is always distributed to the beneficiaries and taxed at the heir's level.  

I have never used the TurboTax Business software.  But I'm quite confident that TT Business can handle such a simple 1041 tax return.  If the Estate paid the lawyer and accountant their fees in 2023, then the estate should be able to deduct those fees on the 2023 1041 tax return.  Who knows, that MAY mean no net income for the estate and no income to be distributed on the K-1.  Good luck!

[guywong]

Don't quite understand what you meant by "Can I take the numbers from what my personal accountant did in 2023 and plug into TurboTax with this additional income? "

Based on what little I know about the situation, I believe all you need to prepare the final 2023 Form 1041 is the $2,900 1099 form and the fees that the estate paid the accountant and lawyer in 2023.  None of the amounts on your person 1040 is needed for the 1041.

If the estate has any taxable income after deducting the professional fees and the $600 exemption, TT Business will produce a Schedule K-1 for each of the beneficiaries, listing their pro-rata taxable income.  This Schedule K-1 will be needed by your personal tax preparer to amend your 2023 Form 1040.  Nothing else.  Hope this is clear.

[thisblows]

So when they passed away (one Dec Sept 2020 and one Dec 2020, our lawyers said to open a brokerage account in the estate name and put all of their assets in there. This included several bank accounts, many stocks and cash. So that's what we did.  Because of Covid and absolutely no legal will with my parents, everything took a long time in probate.  By 2023, all the stocks were sold and everything deposited into the brokerage account.  Again we were told there would be no taxes for either of us when we inherit this money.

(Side note, there was no way to find the cost basis of any stock as my parents owned them for decades, some 40+ years)

In March of 2023, the lawyers told us to divide the assets.  Since I was paying all the estate and house bills since their 2020 deaths, I took what I paid out first over those years, and then divided the rest up 50-50 to my sibling.  (It was nearly $150,000 in bills that I paid)  So to make round numbers, let's say I received $1,075,000 and they received $925,000.

Neither of us paid any taxes on any of that money, nor claimed it as income per our accountant and lawyers.  For any year.  They said this was tax free inheritance.  

When my brother took the estate taxes to H&R Block for year 2022, they didn't say anything about needing to file final year taxes.  So we thought we were done with everything.

Now all of a sudden we find this $2900 broker 1099 DIV  statement for two months in 2023 in the estate name.  So this $2900, which is in the estate name, is what we're dealing with now.

We no longer have a relationship with the lawyer nor accountant as they were insanely expensive and we could not afford them now.  We only used them at the time because we figured the estate would be paying for them in the end, so why not get "good" ones.  Recommended from relatives of course.  Wouldn't do it again. 

[fanfare]

IRS Pub 559 --

"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.

Income in Respect of a Decedent

All income the decedent would have received had death not occurred that was not properly includible on the final return, discussed earlier, is income in respect of a decedent.

How To Report

Income in respect of a decedent must be included in the income of one of the following.

• The decedent's estate, if the estate receives it.
• The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it.
• Any person to whom the estate properly distributes the right to receive it."

@thisblows 

[guywong]

The stocks owned by your parents, as well as the residence they owned, should have received a step-up tax basis equal to the market value in December 2020, and only the appreciation between the 2nd date of death and when the assets were sold would be subject to long-term capital gain.  There was no need to dig up your parents's original purchase price.  I suggest you find a qualified CPA oe EA to review the estate's Forms 1041 for 2020, 2021 and 2022 and to prepare the final 2023 form 1041. It's too late now, but an estate could have elected to file its Form 1041 on a fiscal year basis, meaning it could have elected a year end date not ending on December 31st.  Please don't go back to H&R Block.

Other than the professional fees paid in 2023, the property taxes paid on their residence should be tax deductible on their final 2023 fiduciary tax return too.  The maintenance costs may be subject to a 2% floor.  Your new CPA/EA should be able to guide you on that.  If you have any additional questions after meeting with the new tax preparer, let me know.  Your attorney should know a 2023 Form 1041 was due since s/he was familiar with the size and composition of the estate because s/he needed to file an accounting with the Court in order to close the probate.  I'm afraid you had received some bad advice.

[Opus 17]

@thisblows 

I'm not qualified to state whether a 1041 should have been filed in 2023.  If a 1041 was filed in 2023, then it needs to be amended for this extra $2900, and the amended K-1s will be sent to each heir, who will need to amend their 2023 personal tax returns to account for the money.  (I presume the heirs already have the money itself, you just didn't know there was a 1099 to go with it.)

If a 1041 was not filed, then I think @fanfare is probably on  the right track that you can report this as "income in respect of a decedent."  This still means that each heir who got a share of this money must report it on an amended 2023 tax return.  Since this is a 1099-INT, I assume the entire $2900 is taxable interest, and the principal was already distributed at some point.  If this was a long-term interest bearing account, then interest that accrued (but was not paid) prior to their deaths might be reportable on their 2020 tax return, and only interest that accrued after their death is reportable by you, but reopening the 2020 return is another can of worms you might not want to open, and the simplest thing to do is for each heir who got a share of the estate to report the same percentage of the $2900 as income in respect of a decedent on their 2023 tax returns. 

[M-MTax]

@thisblows 

Find a reputable EA, CPA, or qualified tax professional in your area. 

My opinion (and I have been there and dealt with this sceanrio previously) is that the best approach is to file a 1041 and let the estate pay any tax due for the year in question (2023, presumably).

You should note, and inform your tax professional, that the estate was in probate for an extended length of time and that costs were incurred and NOTE that ALL of those costs are deductible on the 1041.

Note also, that the estate might incur a late filing penalty plus interest BUT those charges plus the tax due could be totally, or in large part, offset by the estate's $600 exemption and the deduction for probate costs (plus any other related deductions).

Finally, note that in order for the dividends to be IRD, and taxable to whoever received them, they would have had to have been includible in the decedent's final return. If the dividends were received (not just the tax reporting form) after the decedent passed, then that income would be includible in the estate's income and potentially reportable on Form 1041.

[guywong]

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 as the legal and accounting fees, property taxes, etc. paid in 2023 probably exceeded the $2,900 income.  On top of that, the estate has a $600 tax exemption.

26 CFR § 1.662(a)-2 - Currently distributable income. | Electronic Code of Federal Regulations (e-CF...

Also mentioned was IRD.  IRD is totally irrelevant since your parents passed away in 2020 and we are now concerned about a 2023 Fiduciary income tax return.  Besides, IRD only adds to taxable income.

Do make sure you file the 2023 final Form 1041 and the state equivalent fiduciary income tax return ASAP.  The executrix is personally liable for the tax, if any.  

Any late filing and late payment penalties are based on the income tax due.  If the profession fees paid and other deductible expenses exceed the $2,900, then there will be no penalties for filing late.

If you're not comfortable preparing the fiduciary tax return using TT Business, then hire a knowledgeable CPA or EA to prepare them.  It's well worth the headaches.  Good luck!