Surviving Spouse and 1041

[tpnl]

An attorney contacted me and requested I do the second year of a 1041 decendents estate.

The surviving wife is the beneficiary (no kids). The entire estate is worth less than 100,000 (this would include her half of the home). Should I use a form 706 instead of a form 1041.

(I am new at this estate stuff and would also like to know where to get comprehensive examples of how to prepare)

Since I am new at estates, I told the attorney I would review the file and get back with him on whether or not I will tackle.

[taxmom34]

bump

i'm bumping this up cause i may need some information on these forms. just buried my sister's husband yesterday. i won't be handling the estate, but would like to have some knowledge so i can help her. thanks

[New York Enrolled Agent]

An attorney contacted me and requested I do the second year of a 1041 decendents estate.

Should I use a form 706 instead of a form 1041.

NO.

In very simple terms a 706 form is like a balance sheet containing the assets and liabilities accrued to the day of death. The VALUE of the estate is used to calculate any tax.

A form 1041 is an income tax return containing the income (usually for a one year period) of the estate from day of death to the close of the tax year. The INCOME is used to calculate any tax.

If you feel you don't have sufficient knowledge, tell the attorney you're too busy and decline the case.

[Burke]

Based on your post, I would recommend the same thing as NY Enrolled Agent and defer this to someone else. You can pick up a Form 706 which has pretty detailed instructions attached to it,(current minimum estate for this form is $2M) and also the Form 1041 income tax return and instructions at your local IRS office to start learning about estate taxation. It can be quite involved. Before doing the 2nd year 1041, you would need the first year to look at as well. Doing these types of returns really requires some extensive continuing education. Many times a local college will offer courses on Administration of Estates and Trusts. Other seminars and tax professional organizations also offer workshops in this subject. I don't think you can get everything you need online.

[Burke]

Just as I was winding up for the day, I picked up the May 2009 TaxPro Monthly magazine from NATP and they have their summer workshops schedule in July, August and September which includes a course entitled "The Final 1040 & Estate 1041." You can access locations and dates at www.natptax.com.

[Burke]

i'm bumping this up cause i may need some information on these forms. just buried my sister's husband yesterday. i won't be handling the estate, but would like to have some knowledge so i can help her. thanks

First thing I would do, is get PUB 559 from the IRS or download from IRS site, "Survivors, Executors, and Administrators." It's a good place to start. Also, when will is probated, the local commissioners often hand out a good set of rules and procedures about setting up bank accounts & keeping records, as well as a calendar of due dates for inventories and accountings.

[taxxcpa]

Form 1041

Usually when people talk about estate tax they really are dealing with the fiduciary tax--form 1041. An estate can remain open more than a year. Sometimes it is necessary to file two or three Fiduciary returns, generally to report interest income for the estate after the date of death. Then there is a house to be sold which might take two or three years to dispose of, so more than one Form 1041 would be required.

All of the above is the least likely situation. Most Fiduciary returns are a one-time thing.

There is nothing difficult about them. In many respects they are easier than Form 1040. Of course a billionaire's estate would probably involve both an Estate Tax and one or more fairly complicated Form 1041s. I would feel fully qualified to do the Fiducairy return for Joe Six Pack, but for Warren Buffett, I would suggest one of the Big CPA firms.

[taxmom34]

trying to get educated in the estate field, by asking a basic question. is there an income requirement for filing 1041. is this the form that is required if the estate is more than a half million?

[WhiteOleander]

trying to get educated in the estate field, by asking a basic question. is there an income requirement for filing 1041. is this the form that is required if the estate is more than a half million?

You are mixing things up. If a person dies and their total assets are worth over 2 million (for 2008), then a form 706 must be filed to pay any "inheritance" tax. There are alot of "if, ands, and buts" for filing this form, but this form determines if there is a tax on the assets of the deceased person.

If after a person dies, there is "income" to the person, then that has to be reported on form 1041. Decedents estate. Income can include interest, dividends, stock sales, real estate property sales, wages paid to the deceased person after the person died. This is just a short list. There can be just about any type of income. The estate files the return and either pays the tax itself, or moves the income out to beneficiaries on K-1's. The decision on how the tax is paid is usually determined by the will, or court if there is no will.

It can be very tricky filing the 1041. Some things that can be done on a 1040 cannot be done on the 1041.

Perhaps if you took a CPE course on decedents estates it would help you get a good idea on how to file them.

HTH

[Burke]

There is nothing difficult about them. In many respects they are easier than Form 1040.

Sometimes they can be quite easy, although calculating the distribution deduction is not what I would call simple. And there can be several elections to treat certain items in one way or another under the Code, like revocable living trusts, etc. Not to mention whether capital gains and/or losses are treated as corpus, retained by the fiduciary or distributed to the bene's, how tax-exempt interest affects deductions, or the pass-through of final year deductions such as administrative expenses and Sche D losses. Just take a look at page 2 of the 1041 and the codes page that goes with the K-1 and you can see all the possibilities.

[Burke]

trying to get educated in the estate field, by asking a basic question. is there an income requirement for filing 1041. is this the form that is required if the estate is more than a half million?

1) Form 706 is the Estate Tax return due within 9 mos of death for estates whose ASSET value is in excess (this year) of $2M. If it is required, a wealth tax is imposed and paid to the US Treasury and some states. If a state has an estate tax, they usually have their own form to file. Many states have repealed their estate tax.

2) Form 1041 is an INCOME tax return (Fiduciary) for estates and trusts that is due annually until the estate and/or trust terminates. Filing requirement is gross taxable income received during the tax year in excess of $600. Form K-1 accompanies this return for each bene who receives any distributions from the trust or estate during that tax year, and the appropriate percentage of income is then reported by them individually on their own 1040. In the case of a final year return that has pass-through deductions, you want to file the return whether the income exceeds $600 or not.

[tpnl]

Thank You

to Burke for the link to where I can find information.

I do appreciate all comments, but most of those posted felt like I was being berated for not knowing about the 1041. I thought is forum was for learning.

I know I am not a favorite on this site. When I read other questions, the feedback seems a little more friendly. If everytime I came across a problem I was not fluent in and just gave up (as suggested by someone) I would never learn anything new.

[Jesse]

Sometimes posts are difficult to decipher because you are not seeing the person or receiving any emotion. Even the posters that suggested you seek help and education took the time to offer help themselves and I truly believe the posters were just trying to let you know the situation might be more difficult than any person, not just you, might first envision. I don't think anyone's intention was to berate you for not knowing about the 1041 or they would not have also offered the help and direction.

I hope you keep posting, asking and answering as we all learn and that is what this board is for.

[Burke]

Absolutely agree with Jesse, and my comments were more suggestions that you not get in over your head before you were ready. Most people who start doing tax returns as a profession have done their own for years, and maybe even worked for a firm and/or accountant for a while. A 1041/706 does not come along every day, although if you build up a practice, you will find yourself being asked to handle estate returns for clients who get appointed executors, or by the family members of your own deceased clients. Keep in mind that most executors are also doing this for the first time, need help, and do not have a clue what they are supposed to do. You are lucky if you get them in the beginning before they start. I have had to undo a year's worth of entanglements because I did not know about it until tax time.