Discussion:First 1041 Return

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{{ForumReplyPost|UserID=CathysTaxes|Date=2 April 2014|Text=I double checked the K1s.  Interest and dividend flowed thru, the capital gains did not.}}
{{ForumReplyPost|UserID=CathysTaxes|Date=2 April 2014|Text=I double checked the K1s.  Interest and dividend flowed thru, the capital gains did not.}}
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{{ForumReplyPost|UserID=Kevinh5|Date=2 April 2014|Text=§645 election plus fiscal year means no tax until 2014 on the 1040s ......}}

Revision as of 19:07, 2 April 2014

Discussion Forum Index --> Advanced Tax Questions --> First 1041 Return


Discussion Forum Index --> Tax Questions --> First 1041 Return

CathysTaxes (talk|edits) said:

2 April 2014
I've taken CPE on Estate Tax Form 1041, read my TaxBook and the 1041 instructions. Since this is my first return, I'm just looking for confirmation. Amounts are definitely rounded for simplicity.

Decedent died April 15 2013. Irrevocable trust received the following income:

1099-R IRA Annuity - $670,000

1099-B Sales of Securities - ST gain - $21,000

(there was also 1099-Div and 1099-Int, as well as other costs and deductions that are on Page 1).

***********************

Heirs:

Sister 55% received distribution from irrevocable trust of $275,000.

3 Nieces 15% each received distribution from irrevocable trust of $75,000.

**********************

Page 1 of 1041:

Total Income $691,000 (plus the interest and dividends)

Deductions: Attorney Fees (etc) - $1500.

The income distribution deduction from Schedule B is $500,000.

Taxable income: $691,000 - $1,500 - $500,000 - $600 (exemption) = $188,900

Tax is $73,150

**********************

The K1s

Sister, lines 1 and 2a, 55% of interest and capital gain.

Line 5, other business and portfolio income - $275,000

3 nieces, lines 1 and 2a, 15% of interest and capital gain

Line 5, $75,000


Am I on the right track? Thanks!

Kevinh5 (talk|edits) said:

2 April 2014
The K-1s should not be carrying out capital gain, unless this is a final year. Or a short list of other exceptions.

Kevinh5 (talk|edits) said:

2 April 2014
Have you considered a §645 election? That would allow you to consider a fiscal year.

Have you considered the 60 day rule for distributions? Or is it 30 days? I'd look it up if I were you.

Kevinh5 (talk|edits) said:

2 April 2014
What makes you think the entire annuity distribution is taxable?

Tonymontana (talk|edits) said:

2 April 2014
Have you considered a §645 election? Isn't it a Sec. 643

Have you considered the 60 day rule for distributions? Or is it 30 days? I think it's 65 days.

CathysTaxes (talk|edits) said:

2 April 2014
Kevin, thanks for your responses. To answer your questions, this isn't the final year, so I'll make sure the capital gains don't flow thru the K1s.

Sec. 645 Election. The heirs prefer the same year as the 1040.

The 60 day rule - is this the 65 day rule for electing to treat distributions paid within 65 days after the close of the estate's tax year as having been paid or credited on the last day of that tax year? The distributions were done in June of last year. Decedent died in April. It doesn't look like that applies, thanks.

The annuity were always taxable on the decedent's returns when she was living. I will double check with her financial adviser, thanks.

Ckenefick (talk|edits) said:

2 April 2014
Sec. 645 Election. The heirs prefer the same year as the 1040.

No surprise. The heirs have already made a terrible decision by cashing this thing all out at once. I'm assuming they had some degree of flexibility here.

CathysTaxes (talk|edits) said:

2 April 2014
Tony, you and I must have been posting at the same time.

Chris, they wanted to keep about $100,000 for taxes. The trust lawyer's letter indicated that the trust called for an outright distribution to the beneficiaries. He suggested a deferral, possibly spreading it out over the oldest heir's life span - seven years. The personal representative (actually her husband is doing all of the running around) doesn't want to keep the trust open very long (he doesn't even want to call the lawyer alot because of being charged, Jiminy Crickets, this estate is worth over 4 million!). There is a retirement residence that is worth slightly over $200,000. The retirement community has a large vacancy, so they don't expect to get their money any time soon for the residence.

I don't expect the personal representative (she received $275,000) to get too hard with taxes. Last year, they bought a retirement residence and the life care contract on their entry fee of $264,000 could be about $100,000 (38.47%) medical deduction. Plus they inadvertently had state tax of $21,000 withheld from an inherited IRA (Illinois does not tax retirement accounts). Now her three children have an additional $75,000 to worry about.

CathysTaxes (talk|edits) said:

2 April 2014
I double checked the K1s. Interest and dividend flowed thru, the capital gains did not.

Kevinh5 (talk|edits) said:

2 April 2014
§645 election plus fiscal year means no tax until 2014 on the 1040s ......
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