I have prepared a relatively simple 1041 for the estate of my B-I-L. Income is Interest, divs and small CG.
Deductions and exemption leave estate with no taxable income - no problem.
Now come the K-1s. There are two beneficiaries. Estate was distributed 50/50 to two beneficiaries. Do I just assign 50% of the income items to each of the K1s?
I assume none of the deductions (mainly legal fees and court filing fees) transfer to the K1s since these are not items that are deductible for individuals.
so far, so good, but you have to allocate the expenses to eliminaate the taxable income. Read instructions on 1041 for expenses, some direct deductions, others subject to 2% AGI. BECAUSE they are not deductible by individuals, usually due to the 2% limit) you shsould take them on the 1041 and then jusst distribute the net.
With all due respect, you may be in over your head - here's why?
1 - you say deductions and exemptions leave the estate with no taxable income. Then you say you assume none of the deductions transfer to the K-1s. The 1041 works mostly like other pass through entities - you subtract allowable deductions from income to get net income and the NET is what gets passed through on the K-1. There may also be other separately stated items (like charity or an AMT adjustment on an asset) that have to be reported separately.
2 - you cay the 1041 is relatively simply, yet you don't know how to calculate net income, report separately stated items, or how to properly allocate between the beneficiaries. If there's NO net income there may not be a need to even include a K-1 unless there are some distributions to the beneficiaries account for. If there's a loss, it may be usable by the beneficiaries if passed through correctly on the K-1.
3 - You didn't mention the size of the estate you're working on or your jurisdiction. Since you said Form 1041 are we to assume you're talking about The Decedent's Estate Return - this is the activity that happened after death but before the assets were distributed - OR are you talking about an Estate Return? I know you said Form 1041, but are you sure that's the right form?
4 - assuming Form 1041 is the right form, have you read the will and any other related documents like a revocable or living trust? These documents, especially the will, will give you some guidance on how to divide and allocate things between the beneficiaries. While the ultimate division may be 50/50 the will would tell you which beneficiary is supposed to get what in making that allocation.
I'd strongly urge you to get with a tax pro and at least get some help with this. A mistake now, as innocent as it may be, could have dramatic and unexpected consequences.
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