Estate received Savings Bonds Interest by beneficiares already filed

[cipparulo12345]

The Estate of Josephine """" got a 1099-INT for savings bond interest. The 3 beneficiaries already filed and they are upset about getting a K-1. It is $14,500 total.
They want me to just report it on the 1041 and pay the tax there. Do you think this would be okay. There will be no other activity in the future.

[Burke]

You still have to disburse the money to them at some point. Are you using a fiscal year on the estate? What was the date of death? When was the interest received (date the bonds were cashed?) If you are using a fiscal year, perhaps it can be taxed in 2021. You can disburse an amount to each to pay the taxes on their individual returns, although you say "there will be no other activity in the future." Are there funds left in the estate? Paying the tax on the 1041` would be much more expensive than divided by 3 on individual returns in all likelihood, and that reduces their inheritance. Need further info as indicated.

[cipparulo12345]

Not a fiscal year but Calendar year 2020. Date of death was April 2019. Interest was for 2020. There is $9,000 left in the estate. I only posted this because the beneficiaries already filed and upset they are now getting a K-1.

[Burke]

If the estate elected a fiscal year, it would run from DOD to 3/31/20. Were bonds cashed in prior to this date? If not, the income would be in the 2nd year of the estate, which runs from 4/1/20 to 3/31/2021 or to the date it is terminated by disposition. So it would be taxed in 2021 if distributed to bene's. As mentioned earlier, estate rates are much higher. If executor decides to pay tax out of estate, recommended she sign off on it in writing. Run the numbers. Why would bene's want the estate to pay if it costs them more money? Strategy: have executor offer to pay your tax prep fee for 1040X's out of estate funds. (Not deductible, but still might be cost effective.) 1099 has 2020 on it as they are produced by calendar year, but that doesn't matter if a fiscal year is involved. Depends on date bonds were cashed in.

[cipparulo12345]

I explained this to them. Bond interest is going to be distrubuted to them on a K-1. I convinced this is the correct and cost effective way for them. They agreed. It is a calender year 2020. Bonds were cashed in Mid 2020.