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Gary Bode, CPA is a Master's Degreed, nation wide accountant offering tax and business services. Member of AICPA and NCACPA. Our virtual office provides excellent service to long distance and international clients. Call (910) 399-2705 for a free phone consult.

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Estate Tax CPA accountant discusses Form 1041 instructions| IRS Tax Form 1041 US Income Tax Return for Estates and Trusts | Form 706

estate taxes explained by Form 1041 CPA accountant

Need a free consult from an estate tax CPA? The Form 1041 instructions get tricky. (910) 399-2705.

Estate tax CPA accountants see Executor confusion between Forms 706 and 1041 because of IRS jargon in the Form 1041 instructions. Unlike Form 1040, where the taxpayer can self prepare year after year, Form 1041 is a “one of” project. Plus it cuts emotional scars, or at least it did for me, when I loved one passes away.

  • Form 706 reports true estate taxes. The requirement to file Form 706? An estate value that exceeds $5,250,000 in 2013. I’m not discussing Form 706 in this post.
  • IRS tax Form 1041 reports income earned by an estate. File Form 1041 if the Estate’s Gross Income exceeds $600 or a beneficiary is a nonresident alien.

More Executor confusion with IRS tax Form 1041 and the last Form 1040 for the decedent

Often the IRS requires a final Form 1040 for the decedent. Note you must mark the return as final. The final Form 1040 cover tax issues up to the date of death. Estate taxes reported on Form 1041 (on income – Form 1041) start on the date of death. Here are some requirements and suggestions. File Form 1040 for 2015 if

  • The decedent’s gross estate income exceeds the sum of the standard deduction and person exemption e.g. for a single person in 2015, $6,300 standard deduction and $4,000 personal exemption = $10,300.
  • The decedent had $400 or more of self-employment income (Schedule C).
  • The decedent received advance earned income credit.
  • There’s a refund due.

Form 1041 CPA accountant tips for Form 1041 Executors

  • Use the accrual basis of accounting. Here the Executor counts income when it’s earned (not when received) and expenses when incurred (not when paid). This allows the Estate to claim expenses paid after the final Form 1041.
  • Use software to prepare Form 1041. However most estate tax software doesn’t offer State modules. But once you understand Form 1041, hand preparing a State Estate tax return might not be a problem.
  • Select a fiscal tax year for the Estate. Then settle the decedent’s affairs quickly. This helps the beneficiaries who use a calendar for personal taxes.
  • Understand the estate tax return well enough to explain it to the beneficiaries. Sometimes estate tax  CPAs have to play referee. Usually Form 1041 categorizes tax issues differently that the Executor thinks about them. Same pie, just sliced differently. Then  distributions to the beneficiaries flow through Schedule K-1 which further complicates things.

 Other posts:

Do you need a Form 1041 CPA?

Maybe. Here are some considerations for deciding on an estate tax CPA. I’m listing some of the issues I see with Executors:

  • Most Executors only prepare one Form 1041 in their lifetime.
  • Doing anything the first time is problematic.
  • Form 1041 instructions cover 40 pages.
    • That makes hard to ferret out the relevant information.
    • The Form 1041 instructions use a stylized technical writing style, use poorly explained jargon and acronyms and expect familiarity with associated tax issues.
  • The second to last page of Form 1041 instructions estimate preparation takes more than 40 hours – Yikes!
    • Note most estate tax CPAs use a tax database that streamlines the Form 1041 instructions, provides relevant examples and brings in extraneous tax considerations specific to the estate tax return.
  • Form 1041 has an alphabet of Schedules that take 10 more extra hours to prepare – Ouch!
    • The IRS really doesn’t make it easy. Blame Congress as the IRS does a great job on what’s demanded of them.
  • Preparing Form 1041 prolongs the Executor’s grief.
  • Bickering among the beneficiaries is common.
  • Note your Form 1041 CPA isn’t an attorney. While most Folks get by probate using the agency’s personnel you may require a lawyer.

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2 comments to Estate Tax CPA accountant discusses Form 1041 instructions| IRS Tax Form 1041 US Income Tax Return for Estates and Trusts | Form 706

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