Form 1041 CPA Provides Strategy Tips for Estate Tax

Form 1041 CPAs try to take stress off the Estate’s Executor. So if you’ve had a death in the family, please accept my condolences. The fiduciary of an Estate usually has to handle unique tasks, like preparing Form 1041, while mourning a loved one. Form 1041 is problematic the first time around. As a Form 1041 CPA, here a few simple tips to avoid some common pitfalls if you’re self-preparing Form 1041 and Schedule K-1(s) for the Estate.

Want to Claim Deductions occurring after the Last 1041?

Form 1041 CPAs see lost deductions. Some expenses, like the last tax preparation fee, get paid after the Executor files the last Form 1041.

One way to avoid this situation? Setup up the Estate to use accrual, not cash accounting. Form 1041 offers this choice and you make it on the first Form 1041 filed. Accrual accounting means you claim expenses when the Estate incurs them, even if you haven’t paid them yet. The flip side? The Estate counts income as it’s earned, not when received. It’s best to think this decision through as changing accounting methods can be complicated.

What Software should I use to Prepare Form 1041?

If you’re self-preparing Form 1041, you probably don’t want to do that by hand. Form 1041 has an entire alphabet of schedules, and the instructions, while well-intentioned, are in Financialese not English. And, take a look at the time the IRS estimates completing Form 1041 will need! So using tax software makes sense. I’ve used TurboTax in the past. They offer a stand alone, computer based version for Form 1041. Turbo Tax is good, but you still have to sorta kinda know what you’re doing, depending on the Estate’s exact circumstances of course. The cost is sometimes more than half of what a Form 1041 CPA would charge, at least for a basic Estate tax return. And it doesn’t handle all the State’s required Estate tax returns either.

Can the First 1041 be the last Form 1041?

Settle the affairs quickly and the first Form 1041 return can also be the last Form 1041 return. As a CPA, I’ve seen folks string things out. Understandably so perhaps. Consider using a fiscal year for Form 1041 instead of a calendar tax year. Most American taxpayers get used a calendar tax year. But on Form 1041, you can choose a fiscal year based on the date of death. That might help make the first return also be the last Form 1041 return. And if the date of death is, say, the end of September, it gives the beneficiaries, who probably are on a calendar year, more time to prepare.

Coordinate the last Form 1040 required for the deceased with the first Form 1041 for the Estate

There are opportunities for declaring income twice and paying more taxes.

Your State’s Estate tax Return

We often end up having to hand prepare the State’s Estate tax form. But here there’s usually help available. Once have an accurate Form 1041, your State’s Department of Revenue will help you re-allocate the components of Form 1041 to their tax return.

Be Ready to Defend Form 1041 to the Beneficiaries

Here’s a scenario every Form 1041 CPA sees. Hostile beneficiaries. I find that being fore warned means being fore armed. First understand where each Estate’s income and expense appears on Form 1041. It’s not intuitively obvious sometimes, so beneficiaries cry foul.

Be ready to Defend Form 1041’s Schedule K-1 to the Beneficiaries

Form 1041 allocates income and expenses to the Beneficiaries through Schedule K-1. This can be by percentage and/ or specific item. Schedule K-1 is the beneficiary’s perspective on the Estate. It’s cryptic and there’s often questions about what the numbers mean and where they derived from. The Executor should prepare for explanations or pass that off to the Form 1041 CPA.

Tax Planning

Sometimes it pays to have a CPA help in the early stages of the Estate. Most tax planning, including that for Form 1041, proactively structures financial affairs to incur the least tax. And, there are opportunities to do so in most cases.

I’m a Form 1041 CPA with a virtual office to accommodate long distance clients. There are hundreds of postings on this website to help you gauge my proactive attitude and abilities. If you need help, please consider us. Of course, we offer a free phone consult to help you make that decision: (910) 399-2705

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