It is best to work with your estate administration attorney and accountant to make sure that you are timely filing any returns that may due and paying any tax that may be owed. Skip to content. April 7, Posted in Probate and Estates. Burner Law Group, P. If a fiscal year is chosen , the tax year ends on May 31 of the following year. This can be done easily on the IRS website.
It is important to gather all of the financial documents necessary to support the tax deductions you want to claim on tax form. The estate must send out Schedule K-1 to all beneficiaries reporting any asset distributions they received. The beneficiaries will refer to Schedule K-1 for the income amount they should report from the estate on their personal income tax return, Form Like the estate, however, Form must be filed regardless of the amount of income earned if there is a beneficiary that is a nonresident alien.
Trusts are usually classified as simple or complex. Simple trusts must distribute all of the income earned to its beneficiaries and cannot accrue income.
Simple trusts also cannot designate a charity as its beneficiary or distribute its corpus principal. Take Control of Your Finances Sign up to get the latest tax tips, information on personal finance and other key resources sent straight to your email. Updated for Tax Year Form is used to report income taxes for both trusts and estates. Estates Not every estate is required to file Form for income earned. For example, if the decedent died on September 15, , the fiduciary could elect a taxable year that ends on August The first taxable year of the estate would run from September 15, , through August 30, , and the second taxable year would run from September 1, , to August 30, Given that banks and other institutions typically issue IRS Forms on a calendar-year basis, choosing a fiscal year that ends in a month other than December will necessitate apportionment of income and deductions between the relevant portions of each calendar year.
In the example above, the fiduciary could not simply rely on IRS Forms ; instead, the fiduciary would need to consult the monthly bank or other financial statements to apportion the income and deductions between the periods running from September 15, , to December 31, , and then from January 1, , to August 30, Similarly, the fiduciary would need to consult the statements to apportion income and deductions for the second year between the periods running from September 1, , to December 31, , and then from January 1, , to August 30, If the income and therefore income tax is minimal, however, or if the fiduciary wishes to simplify accounting for annual income tax reporting purposes, calendar-year reporting for the estate may be chosen, which would correspond with the reporting on IRS Forms If the fiduciary chooses this route, the first tax payment would be due earlier than it would be under the option described above.
The fiduciary could simply rely on IRS Forms , however, rather than needing to apportion income and deductions between portions of the calendar year. The threshold that triggers an obligation to file a state estate tax return varies, of course, by state.
Even if the fiduciary is not required to file a federal estate tax return, she may opt to do so. An effective way to do so is to report the fair market value of each asset as of the date of death on IRS Form ; that value—or, if the return is selected for examination, the value that the IRS and the fiduciary eventually agree upon—becomes the basis of the asset in the hands of the beneficiaries.
All of these can be deducted from the value of the taxable estate, thereby reducing any estate tax due.
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