Are there any Turbo Tax or Tax Cut products that will handle a 1041 for Estate Taxes? If have a very simple one to file with a small amount of dividends and tax-free interest and a few expenses. Will they create K-1s?
Tax Cut Home and Business for about $90 It will create K-1s and do the 1041 (as well as 1040s)
Hi, Kupchik.
You mean 1041 Estate Income Taxes.
A very subtle - but important - point: Estate tax generally is used when talking about the tax on the value of the estate at the time of death. What you are asking about is the income tax on the estate's income after the date of death. Your question is clearly about the tax on the estate's income, not on the value of the estate. When you say "estate tax" without including the word "income", a tax professional will automatically think you mean the date-of-death tax. And adding "1041" sounds ambiguous and leaves us wondering.
For several years, I taught short courses and seminars for other CPAs for the California and Oklahoma CPA Societies. One topic was the Federal Estate Tax, for which Form 706 is filed. The other was Federal Income Taxes of Estates and Trusts, reported on Form 1041. Each of the taxes provides plenty of grounds for questions, obviously related, but quite different. Also, while they are covered by the same form and many of the same rules, the income taxation of estates and of trusts have many significant differences. Trustees and executors (by whatever title) are both "fiduciaries", who are bound by law to put the interests of the trust or estate above their own, so the Form 1041 is called the Fiduciary Income Tax Return.
Just like individual income tax returns, estate income tax returns can range from the very simple to extremely complex. And some very complicated questions are buried just beneath the surface of what appear to be very simple situations. When I retired in the early 1990s, TurboTax and several other products were available for both "do-it-yourself" and professional individual income tax return preparation. There were no good consumer products for preparation of either Form 706 or Form 1041. There were professional-level products for both kinds of tax planning and return preparation, but they were quite complex and very expensive. I don't know anything about current products, but I would expect the situation to be much the same: consumer products for the very simplest returns, and professional products for all but the simplest situations. And, without professional advice, many (most?) executors and trustees will not recognize when their situations have become too complex for the simple products.
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Remember, I've been retired for more than a decade. Always check with your own CPA for the current rules.
RC
R.C. & Fred, thanks for the info.
J.C., you are correct I was referring to the 1041 Estate Income Tax. I spent many hours reviewing the instructions and I seems that in my situation, it might be do-able by hand. The estate income was only about $6k of dividends and a small amount of tax free interest. It looks like I just fill out the 1041showing all income distributed to the beneficiares (taking this as a deduction off the 1041 income) and issue each their part of the income on a K-1. There would not be any tax owed on the 1041 K-1 and each beneficary would pay their portion on their 1040.
Any comments would be greatly appreciated!
I'm not an expert on taxes, so I won't give any advice. Last year, when I had to submit 1041's, I found a PDF file on the IRS web page. you can fill it in on your computer, then print it. It isn't as nice as using TurboTax, but for a simple form it was pretty easy.
Hi, Kupchik.
An estate with $6K of dividend income in a year is large enough to benefit from professional help, in many cases. As I said, "some very complicated questions are buried just beneath the surface of what appear to be very simple situations." The "tax-free interest" might also indicate some complications. (Page 28 of the 52-page official instructions for Form 1041 says, "If the estate or trust received tax-exempt income, figure the allocation of expenses between tax-exempt and taxable income on a separate sheet and attach it to the return.") The mechanical preparation of the return is the easy part. But there are some important decisions that need to be made, and those require some understanding of probate accounting and tax rules.
For example, I was able to save significant taxes for several estates and their beneficiaries simply by careful selection of the fiscal year-end for the estate. Often, ending the estate's year just before final distribution saves the heirs by letting the estate pay tax at low rates on the income while passing through final-year deductions (and already-taxed income) to the heirs, who may be able to benefit from those deductions at high tax rates.
(Quickie example: Estate has gross income of $6,000. An estate gets an annual exemption of $600, except in its final year, leaving $5,400 taxable at 15% to 28%, total $1,147. Individual tax on the whole $6,000 at 35% would be $2,100, leaving them $3,900 after tax. Ending the estate's taxable year just before final distribution would let it distribute the $6,000 - $1,147 = $4,853 tax-free to the heirs. Also, the heirs probably would be able to deduct the estate's expenses as "excess deductions on termination" of the estate as an itemized deduction, saving them even more individual income taxes; see page 49 of the official instructions for Form 1041.)
Not always, of course, because each situation is unique. But a CPA who is competent and experienced in estate matters can often spot savings opportunities that simply would not occur to most tax preparers - not even to most CPAs, who don't work with estates and trusts that often.
Don't forget the word "fiduciary". The executor has a duty, which will be enforced by a court, to act for the benefit of all the heirs. One of the duties is to act as "a prudent man" would act in preserving the estate's property, including avoiding unnecessary tax burdens on the estate and heirs. Simply carrying out the mechanical functions of preparing forms may not be sufficient to convince the judge - or the heirs - that the fiduciary responsibility has been met. As they say, "Where there's a will, there's a will contest."
Does the estate already have a CPA? Does it have an attorney who might recommend a CPA who is familiar with local probate matters?
As I said, I've been retired so long that I don't know what the current rules are, so check with our own CPA to be sure.
RC
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