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CPA advice on Schedule K-1 of IRS Tax Form 1041 and NC A101 | Estate and Trust Tax

CPA WIlmington NC IRS Form 1041 tax preparation

Gary Bode, CPA: please consider calling us at (910) 399-2705 if you'd like a free initial consult with a Wilmington NC CPA Firm that prepares IRS Form 1041

IRS tax Form 1041 and NC A101 are the Income Tax returns for Estates and Trusts.  After Form 1041 tax preparation is complete, a Schedule K-1 is sent to both the IRS and beneficiary.  The Schedule K-1 has 14 main lines of information that report the beneficiary’s share of Estate or Trust income, deductions, gains and losses.  These 14 lines of information then flow into the beneficiary’s personal tax Form 1040 and NC D400.  Of course, the IRS cross correlates Form 1041’s Schedule K-1 with the beneficiary’s Form 1040!

In my experience, the Fiduciary usually has a firm grasp on the raw components of the Estate or Trust.  But the IRS requires splitting and recombining these components in odd ways that make them difficult to reconcile. The CPA should explain the completed tax Form 1041 to the Fiduciary such that they understand exactly what went where.  The Fiduciary usually has to explain the Schedule K-1 to the beneficiary, so they should understand the two step transformation from the raw components of the Estate or Trust, for the tax year, into Form 1041 and Schedule K-1s. 

Preparation of IRS Form 1041 is complex, with multiple schedules and over 40 pages of instructions.  Most tax preparation software doesn’t even support the associated NC A101. If you find that self preparation of Form 1041 / NC A101 and Schedules K-1 becomes daunting, please consider calling us at (910) 399-2705.  We’re a Wilmington NC CPA Firm that believes that just tax preparation accuracy is only part of our service.  We offer a friendly mix of tax expertise and customer service. 

Overview of Schedule K-1s

Schedule K-1 is not unique to IRS Form 1041 for Estates and Trusts.  IRS tax Form 1065 for Partnerships, IRS Form 1120 for C Corporations, and Form 1120S for S Corporation also use Schedule K-1s to report Partnership and Corporate allocations to Partners, Shareholders and the IRS.  NC uses their versions too on tax Form CD401S, Form CD405 and Form D403.  All Schedule K-1s have things in common.  It identifies the issuing entity by name, address and Employer Identification Number (EIN).  It identifies the recipient by name and Social Security number.  Line 1 reports the recipient’s share of ordinary income or loss.  All include an entire page explaining the various codes used.

If you would like a free initial consult, please consider calling us at (910) 399-2705.  We are a Wilmington NC CPA accounting firm serving the greater Southeastern NC area, including New Hanover, Brunswick, and Pender counties.

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