U.S. Income Tax Return for Estates and Trusts

What Is Form 1041: U.S. Income Tax Return for Estates and Trusts?

Internal Revenue Service (IRS) form 1041 is an income tax return filed by the fiduciary of a decedent’s estate, trust or bankruptcy estate.

Based on Section 1041 of the Internal Revenue Code (IRC), Form 1041 is filed to report any taxable income made by an estate or trust after the death of a decedent and before its specified assets were distributed to beneficiaries.

The return is due on or before the 15th day of the fourth month after the end of the estate’s or trust’s tax year.

Key Takeaways

Form 1041 is an informational tax return filed by an estate or trust that made money after the death of the decedent and before it sent an asset to a beneficiary.

The executor, trustee, or personal representative of an estate or trust files the Form 1041.

Form 1041 is also not required if the estate or trust produces less than $600 of annual gross income (AGI) and no beneficiary is a nonresident alien.

Certain income or deductions may require a complementary form or schedule.

Form 10 year-end, and can be delivered electronically or by post.

Understanding Form 1041

Form 1041 reports income received, on behalf of an estate or trust, between the date of death of the decedent and the distribution of the assets to the beneficiaries. It might include income from a stock portfolio, bonds, mutual funds, savings account, a rented apartment, or a final paycheque.

Like all federal income tax returns, on which you compute your taxable income, you can offset some of the amount due by listing deductions or capital losses. All of the [decedent’s] income up to the date of death must be reported on his final Form 1040, which is filed separately by whomever is the executor of the estate.Income goes on Form 1040, and assets transferred directly to the beneficiary outside the scope of the estate, or trust, never get put on Form 1041.

The Form 1041 is required for federal taxation, and corresponds to Section 1041 of the Internal Revenue Code. Some states also impose taxes on an estate or trust’s income.

How To File Form 1041

In this case, Form 1041 (US Income Tax Return for an Estate or Trust) needs to be filed by the executor, trustee or other personal representative of the estate or trust if at least $600 of annual gross income (AGI) is produced from the decedent’s property, or, if a beneficiary receiving some of the assets is a nonresident alien.

Form 1041 covers three full pages and begins by asking some basic questions about the estate or trust. It then prompts filers to list income and deductions, and includes a schedule in which they work through a tax bill using the Schedule G worksheet contained on the second page.

Disclosures pertaining to charitable giving and the distribution of income to beneficiaries come next. This is followed by the ‘Other Information’ umbrella.

Identify Yourself

It all begins with identifying yourself as the taxpayer, and identifying the estate or trust, naming it and giving the address. A decedent is considered a separate taxable entity, and that means the taxpayer needs a TIN, and the estate or trust needs a TIN.

Consequently, to complete Form 1041, you must obtain an EIN for the estate or trust, a nine-digit number issued to an entity for payment of taxes. Either you or the estate representative can apply for it online at IRS.gov/EIN, or you can mail Form SS-4: Application for Employer Identification Number.

Income

Income earned by the estate or trust is reported on its 1041 tax return; finances flowing in one year are recorded in the return filed for that year, while payouts in the next year would appear in the subsequent return. Each source of income – whether it’s interest, dividends, capital gains, rents and royalties – gets its own line on the return. And, if it’s of certain types of income, its own form, too.

For instance, some income or deductions require an additional supplementary form, or ‘schedule’.  Form 1041 has schedules A (Charitable Deduction), B (Income Distribution Deduction) and G (Tax Computation and Payments).

Deductions

The deductions that an estate or trust is allowed to take from its gross income to reduce the amount of taxable income are reported on lines 10 through 22 of Form 1041.

Money that is distributed can be deducted. Each time a beneficiary is to receive a distribution from the estate or trust, the beneficiary should receive a Schedule K-1 showing what they received, which they will report as income on their return.

The worker who needs to complete the 1041 Form will add up all these K-1s and list all the content of Schedule B (which is on page 2 of Form 1041).

Tax and Payments

Once your income and deductions go into the program, you’ll use the Tax and Payments worksheet in Schedule G to fill out that section of your return, and with that part, as always on this document, you’ll refer to the 13 single-spaced pages of line-by-line IRS instructions to make sure you don’t screw up.

You can get a copy of Form 1041 in the mail or online from the IRS website. When you have it before you on your screen, you can type it in and save it on your computer or print it out and fill it in by hand.

Special Considerations When Filing Form 1041

IRS Form 1041 must be filed by estates or trusts ‘the fifteenth day of the fourth month after the close of the trust’s or estate’s tax year’. The trust’s or estate’s tax year is usually the calendar year starting on the date of death and ending on Dec 31, making the Form 1041 due date April 15 of the following year.

A fiscal year (FY) can be used by a corporate executor or trustee instead, and the tax year ends on the last day of the month before the first anniversary of death. Therefore, if a death occurred on June 1, then an FY will run through May 31 of the following year, with a Form 1041 filing by Sept 15 (or the next business day).

Note

Use Form 7004 to apply for a five-month extension to file Form 1041.

E-File Form 1041

However, qualified fiduciaries can e-file Form 1041 and the related schedules only after being approved by the IRS for e-file provider status (which can take four to six weeks to happen).

Mail Form 1041

Instead, mail Form 1041 and the supporting schedules – see the appendix to find out where to send your paper return (the address is determined by where the estate or trust is located and whether the filer encloses a cheque or money order paying any taxes due).

The address is printed on the IRS website. For income tax returns requiring Form 1041 to be filed electronically, you can’t send in a schedule.

Who Has To File a Form 1041?

An estate or trust that earns more than $600 in gross income (AGI) per year after the decedent dies and the assets are not distributed to the beneficiaries must file an annual return form 1041. This rule also applies to a trust with at least one nonresident alien beneficiary, even if the trust has no income to report.

Who Pays the Tax on Form 1041?

The estate or trust holding the assets that are generating an income.

Are Funeral Expenses Deductible on Form 1041?

The Bottom Line

If you look up Form 1041, which appears on IRS documents explaining what to do if your loved one has passed on, you will see that it’s an income tax return filed by a trustee or representative of a decedent’s estate or trust. The first page requires such simple information as the name of the estate or trust, along with address and date of death. The second page asks about its income, and the third page about its deductions.

According to the IRS, estates or trusts must file Form 1041 by the fifteenth day of the fourth month after the close of the tax year.