Death’s Split

Today TaxMama hears from Janet from the South who asks for help with Form 1041, “I am settling our mothers estate and it seems the $12,000 income from one investment will require that we issue K-1s to the three heirs. Other than that, it appears no other income needs to be taxed or reported since it was under the $8,000 limit…I have ordered the 1041 instruction book by snail mail from IRS. Is there any way the estate could pay the tax on this amount instead of issuing 3 K-1’s for $4,000 each?


Well Janet,

It’s good of that you’re taking the responsibility to sort all this out for the family. It’s even tougher, forcing you to keep facing the fact that she’s gone.

Sure, you can skip the K-1s to your siblings and have the estate pay the taxes.

Only, if the estate pays the tax, the rates are MUCH higher than if the heirs report the income on their own returns.

The estate only has a $600 exclusion (exemption) on taxable income. Where ever did you get the $8,000?

Please be sure to all the income from all sources to the $12,000 from that one investment.

So yes, you will have to issue the K-1s to the heirs for the income. And if you also distributed their share of the money, they have the funds to pay the taxes.

While you’re waiting for IRS to send you the forms, here are the links to the form 1041 online and to the instructions.
http://www.irs.gov/pub/irs-pdf/f1041.pdf

http://www.irs.gov/pub/irs-pdf/i1041.pdf

With just this one source of income, it shouldn’t be hard to prepare. Be sure to see if there are
any deductions you can use to reduce the overall income that gets passed through.

And, remember, you’ll find answers about lots of information about inheritances and other tax issues, free. Where? Where else? At TaxMama.com

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