trust inheritance

[POCAHONTAS]

new client grandmother died in September 2008, left the trust to the family which was split several ways, client received $28,833 which was reported to her on schedule K-1(Form 1041) it is checked final Form 1041. client's DOB 9/18/1986 her only other income is on a W-2 and is $3623. She lived with her parents whose only income is social security benefits. Client says she used the $28,833 to live on and supported herself. client was also given a copy of the form 5498 showing an IRA contribution of $179,086 The question is how do I report this income??

thanks

[S T]

If you have K-1

In your software you should be able to find the entry screen for Fiduciary K-1 received and then you just plug in the numbers off of the K-1 Schedule that the Estate/Trust Provided, it should all flow through to the proper schedules. Could be Interest, could be a retirement distribution, could be schedule E page 2, depending on the character of the pass through

The 5498 is a information reporting only form issued mid year - so you do nothing with that for the tax return for your client. Except refer to for contributions current year ?? $ 179K + maybe it was rolled over to your client ???? If it was the inherited account, basis should have been accounted for at the Estate\Trust level.

Sandy

[Burke]

Boy, you guys were up late last night. If grandmother died in Sept 2008 and client received final K-1 in 2009, then that is a lot of income especially if it was split "several ways." Must have been a big estate to have that much income in so short a time for only one heir. Estates and Trusts file on the same form, Form 1041. Are you sure it was a trust? Then why did it terminate? And what lines was the income on just for curiosity's sake? Software or the codes sheet attached to K-1 tells you where it goes on tax return, as ST stated above. Is the Form 5498 in client's name and SSN? If it is in the grandmother's name and SSN (or trust's/estate's EIN) sounds like the amount she received may be her share of the IRA which was liquidated. If so, all taxable and no penalty.

[POCAHONTAS]

the income was on line 5, it was liquidated and the amount was her share only if I put her as non student then she owes only $2775 and if I put her as a full time student then she owes $8530 (of which $5755 is AMT) the good thing is she was a full time student. but I don't understand why she would pay AMT if she was a full time student??

form 5498 is in the grandmother's name and SSN.

thanks

[outwest]

Two thoughts...

The 5498 is irrelevant. It's just to let the account holder know what the year end balance mostly just used to determine what RMD might be required for the coming year. It sounds like the account was liquidated in full by the estate and distributed; nothing to see here folks, move along.

BTW, when the estate liquidates the IRA, then the estate has income which is then.... passed through to the beneficiary (assuming the funds are distributed)

So now a K1 shows up.

The AMT tax screams data entry error. The exemption amount is $44K for 2009. Her w2 and K-1 total less than that so AMT is impossible. If that 5498 amount has been entered somewhere or the line 5 amount and the distribution amount both entered from the K-1, that could cause that (don't enter the k-1 distribution as income, only line 5.)

Hope this gives you someplace to look.

[Burke]

the income was on line 5, it was liquidated and the amount was her share only if I put her as non student then she owes only $2775 and if I put her as a full time student then she owes $8530 (of which $5755 is AMT) the good thing is she was a full time student. but I don't understand why she would pay AMT if she was a full time student?? form 5498 is in the grandmother's name and SSN.
thanks

If you put her as "non-student" where? I don't understand what that has to do with AMT. Something is not right. As I suspected, the income is most likely from the liquidation of the IRA account. The beneficiary must have been the estate and it flowed through to the K-1.
Is someone claiming her as a dependent? You said the parents' income was only from social security in OP.

[POCAHONTAS]

Burke
I think outwest is correct, but I have looked for the error for AMT and can't find anything, so here is how everything is reported perhaps this might help determine the problem:-

no one is claiming her as a dependent, she supported herself with the inheritance money and only earned $3,623. During the interview process on my software it asks if she was a full time student or not and normally that is for the retirement contribution credit, so like yout hat is where I don't understand , to why she owes more if I put her as a full time student.

so on the K-1 is the grandmother;s name and next to it is Rvoc Living trust, the fiduciary's name is a male name with the same last name as the grandmother's name and next to it it says the trustee,

the 5498 shows Merrill lynch as custodian in the box where it says trustee or issuer's name
the grandmothers name is in the participants box, box 5 shows the fair market value as $179,086 and box 7 is marked as an IRA.

thanks

[outwest]

Here's what I would do...

I might start over on a fresh return.

Turn the 5498 face down and ignore it.

Enter the W2 earnings.

Enter the K-1 in your software. It should flow from there to the Sch E page 2 part III then to line 17 on the 1040.

Stop and see what the return calculates to.

Now enter education credit info if credits apply.

Done.

[Burke]

And if possible, do it directly on the worksheets and/or form and forget the questionnaire.

[veritas]

The AMT exemption

is $6700 on unearned income for a child who is taxed at the parents rate.

[S T]

Maybe

Based on Veritas post, maybe uncheck the box claimed as a dependent of other, and filing status Single. And no 8615 form

Sandy

[veritas]

Form 6251 instructions

Certain Children Under Age 24

Your exemption amount is limited to the amount of your earned income plus $6,700 if condition 1, 2, or 3 below applies to you.

You were under age 18 at the end of 2009.

You were age 18 at the end of 2009 and did not have earned income that was more than half of your support.

You were a full-time student over age 18 and under age 24 at the end of 2009 and did not have earned income that was more than half of your support.

If condition 1, 2, or 3 applies to you, complete the worksheet on this page, including lines 7 through 10, to figure the amount to enter on Form 6251, line 30.