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1041 & Sched K-1(1041)

I am trying to prepare these forms for my Mother's small estate and for the life of me I can't follow the instructions. There was $15,331.03 in interest income which I enter on A 1, $149.73 in short term capital gains which I enter on line A 4 and the only expense was attorney fee in the amount of $480 which goes on A 14. That is the total of the income for this estate, this is the first and final return. I do fine through line A 17 $15,00.76.
Now comes the income distribution to two beneficiaries, Schedule B. Line B 1 is A 17. No tax exempt interest. B 3 & B 4 appears to be the same as A 4 (enter it twice?) = $149.73. . B 6 is ($149.73), a negative number.
When I add lines B 1 -6 I am including the capital gains twice times. Once it is included in the amount in B 1, then again on B 3, B 4 and B 6 cancel each other out. ????
There is a total of $15,00.76 distributed.. the whole amount. What am I missing for Schedule B?
Now I look at K-1. There are two equal beneficiaries. I deduce that half of A 1 from 1041 should be entered on line 1 Part III, half of A 4 on line 3. Where do I report the distribution of the Attorney fee and what happens with the deduction on line 20 of the 1041?
RANT: I have read the instruction for these forms and can't figure out what to do. I visited the IRS office in Seattle, they have no training on these forms. At their direction I called the IRS 800 number and they refused to help me walk through this. If their staff can't give guidance what on earth do they expect an ordinary taxpayer trying to do the right thing to do... this shouldn't be brain surgery.
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Reply to
Perplexed
They expect you to hire an accountant, which is what I did when I faced a 1041.
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Phil Marti
Clarksburg, MD
Reply to
Phil Marti
well, I am not an accountant. But, that does not stop me from filling out tax forms, or responding with what I hope will be helpful comments.
B4 should be zero. You have no capital gains included in SCHEDULE A line 1 (you make no mention of any charitable deduction).
no. Line B4 should be zero
Yes, B3 and B6 cancel each other out (I never undestood why this type of thing happens so much on tax forms . . .)
Total DNI is $15,001 (your total interest income plus cap gain, less atty fees). I do like your attempt to make some sense out of the resulting form numbers based on your common sense. That is what led you to question your form, and thus learn the errors you were making.
are you distributing the capital gain? You seem to be saying yes here, and no down below where you say all of line 1 ($15331) should be distributed. What does the governing instrument say? What is best, tax-wise, and not improper?
What am
You should be referrning to the Distributable Net Income here, not the interest income. The DNI would be the interest income, plus (perhaps) the cap gain, less the attorney fee.
Where do I report the distribution of the Attorney fee
a valid rant, but rants will get you nowhere with taxes. They are too complex. I will stop my own rant here, and save the moderator a few keystrokes . . .
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Reply to
Gil Faver
It is not at all uncommon for replies in this group to refer OP's to professional help when appropriate.
For example, many aspects of trust and estate income tax returns are subject to specific state law, much more so than the typical Form 1040.
The Privacy Act and Paperwork Reduction Act Notice for Form 1041 shows the following average times to complete as follows:
Recordkeeping 52 hr., 49 min.
Learning about the law or the form 20 hr., 39 min.
Preparing the form 38 hr., 14 min.
Copying, assembling, and sending the form to the IRS 4 hr., 34 min.
... and that is just for the Form 1041 itself, the Schedule D, Schedule D Tax Worksheet, Schedule J, and Schedule K-1 have additional significant time burdens associated with them. Whether or not you accept these time estimates, they do at least serve as a relative indicator of complexity.
I don't see where "Perplexed" is somehow immune from the degree of effort and sophistication required.
-Mark Bole
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Mark Bole
Mark Bole wrote in news:96bKk.5652$ snipped-for-privacy@nlpi064.nbdc.sbc.com:
That's all fine for now, but shouldn't our representatives try to simplify things? (I know it's not the job of the IRS or the state tax agencies to simplify - it's the legislators' job).
While that's pie in the sky, how will I make sure that my inheritors won't run into to much trouble filing? Give most everything away during my lifetime?
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Best regards
Han 
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Reply to
Han

I am replying as a general comment, for the fact that this issue is non-partisan, but generally interesting.
When we had a nanny, I wanted to stay legit. The process of withholding and paying the taxes made the OP's 1041 trust return look like a cake walk. The state and federal Nanny paperwork was completely different, state was pay as you go, federal was an add-on to my return. 'nuff said.
The rules regarding retirement accounts are so convoluted that even when a civilian 'tries' to follow the rules, it seems that bankers and others they turn to for advice don't understand the process. I posted here and on my blog about a guy with no income who inherited $160K from his sister, but within an IRA, he should have rolled it over to an inherited IRA, and paid tax as he withdrew funds. In 2008 he could have withdrawn $8950 (the sum of exemption and std deduction) with that figure rising each year, and no taxes at all due. No one helped him, and he got hit with a near $40K bill.
These are just two examples of the system getting too complex for our own good.
Well, I'll fall back to Phil's advice. I have multiple trusts to fill for, so I learned how to get through the paperwork. First year took days to review, next year was less, now, I bang out 4 in an afternoon. Your executor should pony up the $500 or so and hire a professional. Often that's peanuts compared to making a mistake or not planning well enough.
Joe
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Reply to
joetaxpayer

The OP's 1041 has about six lines filled out on it. And, he is willing to put forth the effort and is seeking help. I think my response did the trick. The heck with hiring a professional in this instance. You guys!
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Reply to
Gil Faver
Me too, when our kids were little.
Mom didn't have much remaining in her living trust and I, like a good daughter got a tax ID for the trust because she passed away late last year. It took me several months to resolve a couple months to dispose of her holdings and comply with the trust direction to fund a special needs trust for a grandson, thus the interest and short term capital gains. I disposed of stuff as quickly as I could.
Husband and I have revocable living trusts too. With this experience I think I shall direct my trustees to sell the remainder in the trust immediately once we have passed and include any interim gains in our last individual tax return.
My brother and I are co-trustees of the trust, I am executor of the estate (such as it is). What burns brother and I is that the grandson got a very substantial portion of the estate, we get the remainder and grief of managing all this.. And all I am trying to do is to file a return that tells IRS who will be be paying the tax on the income. For several reasons I would love to report the grandson's share of the trust's earnings on a K-1 but I know Mom wouldn't want to screw up his SSI.
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Reply to
Perplexed
This wasn't the OP, but a guy trying to make it easy for his heirs. I don't know if they have a lick of intelligence and inclination or if they are going to be brain surgeons, making so much money that their time is best served operating and hiring a pro. Tough to answer such a hypothetical. Joe
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Reply to
joetaxpayer

Distributions from the trust *must* be reported on the K-1, how else would you propose to do this? I'd think Mom wouldn't want you to run afoul of the IRS regs.
Joe
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Reply to
joetaxpayer
This is a prime example of why I always counsel against DIY estate planning. When you return to your attorney to make this modification to your trust you'll learn that it will probably create, rather than avoid, the need for a 1041. Your final tax year ends when you do, and any sale after that couldn't appear on your final return.
The way to avoid a 1041 for the trust is for the trustee to distribute the corpus without liquidating anything. The beneficiaries can then sell or not sell as they wish and deal with their own tax consequences. And, assuming the trust was drawn up to end when you both do, all you need to do is remind your successor trustee to clean it out ASAP. No additional paperwork required.
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Phil Marti
Clarksburg, MD
Reply to
Phil Marti
Sez you. While I have no reason to doubt what you advised OP, I have no reason to trust it either. Nor would I rely on it without independently verifying it elsewhere.
I never said that a reasonably intelligent person with plenty of time on her hands couldn't figure out a 1041. My "hire an accountant" answer was directed to OP's specific question: "What does the IRS expect me to do?" I'll stick with that answer.
My expanded remarks about what I did when faced with a 1041 in no way implied that it's a necessity for every executor/trustee. But I sure wasn't going to waste my time learning everything I'd need to know. It was well worth the money to me to hire someone I could hold accountable, rather than relying on what could be, for all I know, a very lucky monkey sitting at a keyboard in the ether somewhere.
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Phil Marti
Clarksburg, MD
Reply to
Phil Marti
I spent a reasonable amount of time looking for and eventually buying a few books and course materials on this topic. One book I can recommend without reservation is "Your Trustee Duties" by Holmes F. Crouch (224 pages, 2004, Allyear Tax Guides, Saratoga, CA 95070, ISBN 0-944817-71-8).
As the cover states, it's about "how to dissect a trust contract, prepare a Form 1041, distribute income and principal to beneficiaries, and terminate the trust". I think the author does an excellent job.
The best $25 my late parent's trust ever spent!
-Mark Bole
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Reply to
Mark Bole

There is no reason for you not to be compensated for this grief.
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Reply to
Gil Faver

Well, of course. I will say the same thing for what a professional tells you.
ok. The OP asked a lot of questions seeking help. You picked one rhetorical question to answer. nice job!
That is fine, but that is clearly not what the OP has decided for himself.
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Reply to
Gil Faver
The only things tax simplification proposals have ever provided are more work for tax preparers, higher taxes, more material for comedians.
Dick
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Dick Adams
[...]
On a smaller dollar scale, but still as screwy -- a resident alien tax client, well-educated, leaves his job and goes to graduate school. Takes money out of 401k (still with ex-employer) to pay, gets hit with combined fed/state penalty of 12.5%. If he had just rolled over to an IRA first, which changes almost nothing about the nature of his tax-favored retirement account, then he would have had an exception to the penalty.
-Mark Bole
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Mark Bole
Another - a woman let go from her company came to me for advice, and I didcovered that she listened to someone else first, rolling over her 401(k) to an IRA. She was 56 at the time of seperation, she could have tapped the 401(k) penalty free, but not the IRA. The 401(k) was huge, and enough for her to retire on comfortably. Joe
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JoeTaxpayer
in news:gdgq6u$dgj$1 @reader1.panix.com:
Courtesy of your and mine Congresscritters, striving for reelection ...
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Best regards
Han 
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Reply to
Han

That is not true of all proposals, but is true of all enactments.
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Reply to
Gil Faver

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