1041 Estate Return Filing or not

[snsa]

Preparing taxes for Mom who passed away in May of 2019. She had Interest and Dividend income along with retirement income from 1099R's.  In researching IRS requirements I've read that her tax return should report income received up to the date of death and the financial institutions upon request would issue a 1099INT or DIV to the beneficiaries to report on there own return.

I've also read that a 1041 should be filed if an estate had $600 or more gross income, then K-1's would be issued to the beneficiaries. I can't see doing both of these methods--that would double up the income.

Question is----What exactly is the determining factor to have to request the EIN and file a 1041 versus just having the financial institution issue 1099's to all beneficiaries?

Thanks for any help out there!

[Irene2805]

I'm sorry for your loss!

The income your mother received after her death belongs to her estate and should be reported on the estate tax return (if the estate had $600 or more gross income).

But don't worry about double taxation!  Estates are "pass-through entities" -- a special business structure that is used to avoid double taxation.  Pass-through entities don't pay income taxes at the "company" level. Instead, income and deductions are allocated among the beneficiaries and income taxes are only paid at the individual beneficiary's level.

For an estate return (1041)  you will need TurboTax Business.  You can visit the following link to purchase the program: TurboTax Business.   

TurboTax will take you through an interview to prepare the business return, similar to the personal (1040) products.

As part of preparing the 1041 return, TurboTax will prepare K-1 forms for each beneficiary, which they need to enter into personal 1040 returns.

[Anonymous_]

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@snsa wrote:

...I've read that her tax return should report income received up to the date of death and the financial institutions upon request would issue a 1099INT or DIV to the beneficiaries to report on there own return.

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The problem with that is the income has to be split according to the date of death and, more importantly, the beneficiaries need to be identified if the account does not specifically name them.

The financial institutions simply do not want to devote resources to that endeavor, not to mention the liability if they include the wrong beneficiaries (or exclude the right beneficiaries).

[snsa]

Yes, I assumed the financial institution would be reluctant to issue multiple 1099's.  Thank you for your input.  I appreciate it.

[snsa]

I was anticipating having to file a 1041---and thank you for your advice. Much appreciated.

This brings me to another question as I have not yet seen the 1099's:

• Should I expect to see a 1099 showing income up to the date of death, as well as an additional 1099 beyond that date for income attributable to the estate?
• What about the fact that beneficiaries submitted their estate claim paperwork at various dates and their share was put in their name at various dates.  Note:  the brokerage firm indicated that they do not necessarily wait for all beneficiaries to submit their claims before converting.

Thank you for any input on this issue.

[Anonymous_]

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@snsa wrote:

• Should I expect to see a 1099 showing income up to the date of death, as well as an additional 1099 beyond that date for income attributable to the estate?

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I would expect to see a 1099 that covers the entire tax year (which is a calendar year in the case of individuals) for your mother, despite the fact that she passed away around mid-year. 

What typically happens is all of the income on the 1099 is reported on the decedent's final return and the portion that is attributable to the post death period is reported as received as nominee for the estate (or trust, as the case may be). The estate then reports that portion of the income it received after the death of the decedent on Form 1041.

[snsa]

I assume the total of all K-1's for the beneficiaries needs to match the income distribution deduction on the 1041?  Some distributions to beneficiaries will be made in 2020, so even though a K-1 is prepared for the Estate's 2019 form 1041, the beneficiary will report income for 2020, since there is no requirement for distributions to be made in the current year?

Thanks for any input.

[Anonymous_]

Yes, the total of all K-1s should match the IDD but, obviously, do not expect distributions of corpus to be factored into that matrix.

The distributions attributable to the 2019 tax year (assuming a calendar year return) and passed through to the beneficiaries on their K-1s will be reported on their 2019 individual income tax returns (even if distributions were made during the 65-day period following the close of the tax year if a Section 663(b) election was made).

Otherwise, if the estate is filing a return for 2020 and passing through items of income, gain, deductions, credits, et al, then the beneficiaries will report those items on their 2020 individual income tax returns.

[snsa]

Thank you very much for your input.  A couple follow-up questions:

• Does not the 1041 need to be filed in the year of a person's death?  So, would it even be possible to file the Estate Tax Return for 2020?
• Most of the distributions (via brokerage account transfers to named beneficiaries) were made in 2019 or in the 65 day period following the calendar year 2019. There are some remaining transfers yet to be made that fall beyond the 65 day period.  So is it acceptable for beneficiaries to report some distributions in 2019 and some in 2020?

[snsa]

OK, think I've got it---so since some distributions (i.e. transfers from brokerage account) were made in 2019, an Estate return will need to be filed for 2019, then for distributions in 2020 that are beyond the 65 day period, another 1041 will need to be filed for the 2020 year??

Thanks so much!

[snsa]

From IRS Publication 559 it indicates that a fiscal year can be chosen.  So, let's say I chose June 1, 2019 through May 31, 2020 I likely would only have to prepare one 1041.  This would likely encompass all distributions to beneficiaries, requiring them to report on their 1040 only for the 2020 tax year, even though some distributions were made in 2019.

Sound correct?  Thank you!

[snsa]

Hello again,

You indicated that the fiscal year would start as of the death date, but I've read other information that suggests that one could choose a different date.  Additionally, in researching IRS regulations, I don't find a requirement to use the death date as the start date if a fiscal year is chosen.  Thanks.