Which year's 1041 form should I use for a fiscal year ending 8/31/2021?

[kmd]

Hello, I am filing form 1041 for an estate and trust (together) (i.e., taking the Sec 645 election per Form 8855).  Although there is no actual estate in that all assets are in the trust, no probate, no executor, I am doing this for a few reasons - no need to pay estimates, I can file only one 1041 for a fiscal year and be done, and the exemption is $600 instead of $100.

However, I realized that I don't yet have the 2021 1099-DIV info needed from one of the brokerages as they operate on a calendar year, so I'm going to need to file a Form 7004 extension for the 1041.  My fiscal year ended 8/31/2021, and the 1041 is due 12/15/2021.  All taxes will flow through to the beneficiaries via the K-1, so no tax will be due at Federal or State (also filing 541 for California).

My primary question is - next year, when I am able to file, do I need to use the 2021 version of the 1041, or can I use the 2020 version, which I have almost completed?  That is, do I need to buy TurboTax Business software again for the 2021 version?  It's a fiscal year spanning 9/16/2020 through 8/31/2021, but since neither the 2021 software nor 2021 1041 Form are available, I have used 2020.  Hopefully, I can still use 2020 next year when I file?  Thank you.

[Anonymous_]

You can use the 2020 edition of TurboTax Business to prepare a 1041 where the fiscal year begins in 2020 and ends in 2021. 

Note, however, that you have to take into account any tax law changes since the 2020 edition of TurboTax Business is basically not programmed to do so. However, the tax bracket would be most relevant but that should not impact your 1041 since you are passing all of the income through to your beneficiaries.

Also note that the exemption is useless if all of the income (including gain) is passed through to the beneficiaries (i.e., if nothing is reserved to the trust).

Further still, the trust would not have to make estimated tax payments if it had no tax liability for the preceding 12-month period (i.e., if this is the initial and final return for the trust or if the trust had distributed all of its income/gain in previous tax years).

[Critter-3]

IF  you used the 2020 program to file the 2019 - 2020 return then you can put the 2021 form  1041 on extension and WAIT for the 2021 program to be functional next year.   

If you use the 2020 program you will have to start a NEW return for the same trust ... you cannot transfer the prior year information.  

If you will only file ONE 1041 ( a first and final) then you can put the return on extension and finish the return when you have the information needed.... then the 2020 program is all you will need to use. 

[Anonymous_]

The 2021 edition of TurboTax Business was not really designed to prepare a fiscal year 1041 that began in 2020 and ended in 2021. 

Even in Forms Mode, a return prepared in such a manner will get flagged (red boxes) on the Information Worksheet and the K-1(s) will show 2022 as the fiscal year end.

[kmd]

Thanks so much for the info!  For several years prior to my mom's passing on 9/16/2020, the trust was in a separate EIN, and I had become successor trustee.  During those years as trustee, I filed a 1041 grantor's trust listing INT/DIV income under the EIN, and my mom still paid taxes for that income on her 1040 (under her own SSN).  The last 1041 grantor's trust I did for the EIN was for the short year of 1/1/2020 through 9/15/2020.  I filed that in April 2021, again paying all taxes through 9/15/2020 on her final 1040 form.

I found a lot of documentation indicating that it would be wise to do a Sec 645 via Form 8855 primarily because of the ability to do a single return and because of the avoiding of estimated tax.  And yes, the trust had no tax liability prior to her passing but only because it was a grantor's trust.  So, then it's not exactly the initial return, right?  Because of this, I didn't check the box for initial return, just final return.  I suppose you're going to suggest I should have gotten another EIN for the trust which became irrevocable, but I was already trustee, and moving assets for 15 accounts (brokerages and banks) would have been a hassle.  I also read that it was not entirely necessary because I was already trustee.  Nonetheless, I actually did request an irrevocable trust EIN back in April 2021, so I have one, but I never moved assets to it.  I just distributed everything to myself and the other beneficiary from the old revocable trust EIN.

I am mostly concerned that I did not pay trust estimates and don't want any penalties, and everything I read indicates that only an estate can do the fiscal calendar year.  The implication is that if I was not doing sec 645, then I should have filed for the short year 9/16/2020 - 12/31/2020 in April 2021, and then I'd have to file again because assets were not yet distributed. 

One more question - if my mom received a CA state tax refund for 2020 on her final 1040, do I have to include that on the 1041?

Thank you again.

[Anonymous_]

You really should consult with a local tax professional (and possibly legal counsel); someone actually needs to read the trust document itself. It could very well be that the trust would continue to be considered a grantor trust (if you are the sole trustee and beneficiary and have certain powers), the fact that it is irrevocable notwithstanding.

Regardless, whoever received the refund should report it on their return since it is IRD (income in respect of a decedent).  If the trust (or estate) received the refund, it can be reported on the 1041.

If the trust is not considered to be a grantor trust, then the trust actually did become a new entity upon her death (an irrevocable, nongrantor trust) and would need a new EIN.

[kmd]

Thank you. I will be sure to include her CA refund as income.  I have read the trust, and it is no longer a grantor's trust as my mom has passed.  It only became a grantor's trust when I became successor trust several years ago when my father was found incapable and my mother resigned from the trust.  At that point, the trust received a new EIN, and I was trustee.  I started filing 1041s for the EIN as grantor's trust and continued to report all income under my parents SSNs, BAU.  The trust is now a complex trust as it has distributed all assets, and will now file what I certainly hope to be the last 1041.

I obtained an irrevocable trust EIN, but I never moved the assets and simply distributed them to beneficiaries from the EIN that was in place since I became successor trustee (several years ago, when my father was found incapable, and my mother resigned as trustee).   I was looking to avoid the administrative hassle, given that I did it before when I became trustee (I moved everything from their SSNs into the EIN at that time).  I read that it is possible to do this although the accounting can be hairy although it seems to me that the accounting is even more hairy if you move everything to yet another EIN and now you have two EINs and an SSN that have to be dealt with.

But at this point, what am I supposed to do with the irrevocable trust EIN that never had any assets moved to it?  All the income generated was under the old revocable trust EIN and is now completely distributed directly to beneficiaries. I am a 75% beneficiary and my half brother a 25%. Neither of us want to incur a lot of expenses, and finding a trustworthy CPA with trust knowledge is difficult work in itself.  Same issue but worse with lawyers.  I found out that my parents' lawyer ended up getting formally reprimanded by the CA bar for overcharging.  And my parents were definitely among his overcharged clients.  I've been doing these taxes for years - I feel like it really shouldn't be that complicated.  It was $6000 just to make me trustee 8 years ago - no actual trust changes.

You mentioned that I don't need to go with the Sec 645 to do a fiscal year trust (9/16/20 - 8/31/21), but I can't find any documentation stating this. In fact, everything points to the Sec 645 election.

Thank you.

[Anonymous_]

You can certainly make the Section 645 election.