The estate or trust has its own income tax return — separate from your loved one's final 1040, and one that most families have never heard of before they needed it.
After someone passes away, any money the estate earns — interest in the bank account, dividends from stocks, rent from a property — doesn't get reported on your loved one's final tax return. That final return only covers income up to the date of death. Income earned after that belongs to the estate itself, and the estate files its own income tax return: Form 1041.
If you're thinking "I didn't know the estate had to file taxes" — you're not alone. Most people haven't dealt with this before. If the estate has any assets earning income while it's being settled, a 1041 is likely required.
A Form 1041 must be filed if the estate has gross income of $600 or more during the tax year. In practice, most estates with any investment assets — even just a savings account — will meet this threshold. The estate may need to file for multiple years if probate takes more than one year to complete.
When the estate distributes income to beneficiaries during the year, each beneficiary receives a Schedule K-1 showing their share. Beneficiaries then report that income on their own personal tax returns. We prepare the estate's Form 1041 and coordinate the K-1s — and can also prepare the beneficiaries' personal returns, keeping everything consistent under one roof.
If you're not sure what you have or where to start, just reach out. We'll help you figure it out.