I am the trustee of a Michgan trust. The only income was a distribution from a pension plan, taxable on the federal level. There was state backup withholding of 4,000 subtracted from the distribution, basically unnecessarily. There will be no trust state tax for 2019, (or ever), as all the income is distributed. The federal return is, at first glance, clear - subtract the withholding as taxes paid in 2019, and next year declare the state refund as 2020 income. However, the state of Michigan requires adding back the amount of the taxes paid/withheld as an adjustment to state income for the individual tax returns. This is shown on the K-1 form for Michigan generated in Turbotax Business. So each of the three beneficiaries will show an additional 1,333 (4,000/3) in income for their 2019 state returns. My issue is that two of the beneficiaries are non-residents, and that $1,333 looks to be enough to trigger a Michigan individual non-resident tax filing requirement for each. This requirement is burdensome, whether or not there is any tax to be paid after credits. How do I avoid having the out of state beneficiaries file Michigan individual tax returns?
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My mother passed away April 1 of 2019. I just got the 1099 for the pension. She received 3 month payments before April 1, and the last on April 25. The 1099 reports all four months income under her SSN. The Distribution code is 7, normal distribution. My impression is the the last payment should be reported on her Estate tax return, form 1041. I can either ask for a corrected 1041, or issue a 1099 from her personal return to the estate. What is the preferable procedure, and how to implement it?
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