Key Points to Remember

An estate or living trust must pay taxes on any income earned from investments or rental property. Form 1041 is used to report income and deductions, specifically from the time of the decedent's death until bequests are made. The form can be e-filed for deaths that occurred within the past two tax years and is a federal tax return, with state returns potentially differing.

How Form 1041 Operates

An estate can earn income from untransferred investments or unpaid salary. This income must be reported on Form 1041, which can detail estate taxes, income taxes, or both. The form only reports income from the decedent's death until the estate closes and can be offset by deductions and capital losses. Income before the decedent's death is recorded on a separate tax return.

Who Uses Form 1041?

The executor or personal representative of an estate must file Form 1041 when income is directed to the estate, distinguishing between assets included in the estate versus those that go directly to beneficiaries. Assets owned by a trust that produce income also require Form 1041 filing. Trusts are categorized as simple or complex, with differences in how income is distributed to beneficiaries.

Obtaining Form 1041

The IRS provides an interactive Form 1041 on its website but may not have the next year's form available yet. The form includes schedules, although Schedule D must be accessed separately on the IRS website.

Completing Form 1041

Income and deductions are reported on specific lines of the 1041 tax return, with total amounts calculated on other lines. Income distribution to beneficiaries, executor fees, and administrative expenses can be deducted. Each beneficiary receives a Schedule K-1 detailing income received from the estate for their own tax reporting.

E-Filing Form 1041

The IRS accepts e-filed Form 1041 and amended versions since 2014, with supporting schedules also allowed. Mailed schedules are not accepted after e-filing, and returns are only accepted for the current and previous two tax years.

Mailing Form 1041

The mailing address for a paper Form 1041 depends on the estate's location and tax payments, detailed on the IRS website. Form 1041 is required for estates with a gross income over $600, with specific rules for grantor trusts and nonresident aliens as beneficiaries.