Deferred Tax SAVING Solution

Deferred Sales Trust is a smart and legal way to defer capital gains tax and reduce the overall tax burden on the sale of homes, commercial real estate, businesses, and other highly-appreciated assets. Learn more about this strategic investment HERE

It’s normal for tax accountants to take on the task of filing this form, since it’s pretty complicated. But just in case you decide you want to fill it out yourself or you want to understand what your accountant is doing, let’s walk through how to fill out Form 1041.

If you need to file Form 1041, you’ll need to gather information about the trust or estate income you’re reporting. At the top of the form, you’ll enter the type of estate or trust in question, the Employer Identification Number (you can apply for one of these online), and other information such as the name of the estate or trust and the name and address of its fiduciary (the person responsible for its assets on behalf of the beneficiaries).

The next section of Form 1041 covers the income of the estate or trust. It’s where you declare income from things like interest, dividends, capital gains and more. For some kinds of income, you’ll have to attach other supporting tax forms as indicated. Add up all forms of income you’ve listed and write the sum on Line 9.

Once you’ve declared the income of the estate or trust, you’ll enter deductions. Just like with personal income taxes, deductions reduce the taxable income of the estate or trust, indirectly reducing the tax bill. On Form 1041, you can claim deductions for expenses such as attorney, accountant and return preparer fees, fiduciary fees and itemized deductions.

After the section on deductions is complete you’ll get to the kicker – taxes and payments. You’ll subtract deductions from income and then use Schedule G of Form 1041 to calculate the tax owed. You can then subtract any tax payments that have already been made or withheld, any penalty owed (if applicable) or the amount overpaid (if applicable). If you overpaid, you can opt to have the money you overpaid credited to next year’s tax return or refunded to you. Then you (or your paid preparer) will sign and date the form.

The second page of Form 1041 provides detailed instructions for calculating charitable deductions and income distribution deductions (if applicable), as well as instructions on tax computation. The bottom section of page two is a series of yes-or-no questions about the income sources and business dealings of the estate or trust. If you’re not sure about the answers to these questions, don’t guess.

Bottom Line

Even estates too small to trigger the estate tax can be large enough to create significant paperwork. And if the estate has income, that will need to be reported on Form 1041. If you’re the executor of an estate, it may fall on you to fill out – or hire someone else to fill out – Form 1041. Before you get started preparing the form it’s a good idea to gather all the relevant documentation for the estate or trust. That way, you won’t have to keep starting and stopping while you look for more information that will help you give the IRS what it needs.

IRS Form 1040

IRS Form 1041

Schedule K-1 instruction

IRS Form 1120S