Your Guide to Filing Form 1041: U.S. Income Tax Return for Estates and Trusts

Updated for tax year 2024.

As the baby boomer generation ages, more taxpayers are handling estate and trust taxes for the first time. According to Accounting Today, the number of income tax returns for estates and trusts (Form 1041) increased by 14.9% between 2020 and 2021. But for many of us, handling taxes for an estate or trust can feel like deciphering a foreign language.

As more people navigate these tax forms, it’s important to understand IRS Form 1041 and its intricacies. This guide will walk you through the essentials, breaking down Form 1041 filing requirements, instructions, and tips to make your tax preparation less daunting.

At a glance:

• Income generated between the owner’s death and asset transfer to beneficiaries must be reported to the Internal Revenue Service on Form 1041.
• Beneficiaries are responsible for paying income tax if assets are distributed before earning income.
• Not all trusts and estates must file Form 1041 — only those with income-producing assets or nonresident alien beneficiaries.
• The due date for Form 1041 depends on the tax year, which can be the calendar year or a fiscal year chosen by the executor.

What is IRS Form 1041?

IRS Form 1041 is the U.S. Income Tax Return for Estates and Trusts. It is used to report income earned by a decedent’s estate or trust after the estate owner’s date of death but before assets are distributed to beneficiaries. Just don’t confuse Form 1041 with Form 706, which is used for filing an estate tax return.

When a person passes away, their estate becomes a separate taxable entity. Any income this entity earns — from rental income, capital gains, interest, or dividends — must be reported on IRS Form 1041. Similarly, income earned by certain trusts is also reported on this form.

Different schedules, such as Schedule D (capital gains and losses) and Schedule K-1, are also attached to Form 1041 to report specific types of income or the beneficiary’s share of income.

How does Form 1041 differ from Form 1040?

Form 1040 is used to report the income of an individual taxpayer, while Form 1041 is used for the decedent’s estate or a trust. For example:

• Form 1040 covers the income earned by an individual before their date of death.
• Form 1041 handles income earned by the estate or trust after the individual’s death.

For example, if someone dies before receiving their final paycheck, the money from that paycheck will be transferred to their estate. This income needs to be reported on Form 1041. But someone must also file a final return (Form 1040) for the deceased — usually a spouse, another close relative, or an attorney. This will report all their income earned in the final tax year while they were alive.

Form 1041 example

Here’s what the first page of IRS Form 1041 looks like:

Make sure to gather all the financial documents necessary to support the tax deductions you want to claim on Form 1041. For help with this, check out our Form 1041 tax preparation checklist.

Form 1041 instructions: Who needs to file Form 1041?

The fiduciary (executor, administrator, or trustee) managing the estate or trust is responsible for filing Form 1041 to report any income tax liability of the estate or trust.

You must file Form 1041 if the estate or trust meets any of the following criteria.

Decedent’s estate

The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic estate that has:

1. Gross income for the tax year of $600 or more, or
2. A beneficiary who is a nonresident alien.
3. If you held a qualified investment in a qualified opportunity fund (QOF) at any time during the year, you must file your return with Form 8997 attached.

If the estate generates no taxable income and has no nonresident alien beneficiaries, there’s no need to file Form 1041.

An estate is a domestic estate if it isn’t a foreign estate. A foreign estate earns income from sources outside the United States. This income is not connected to any trade or business in the U.S. and is not part of gross income. If you are the fiduciary of a foreign estate, file Form 1040-NR, U.S. Nonresident Alien Income Tax Return, instead of Form 1041.

Trust

The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic trust taxable under section 641 of the Internal Revenue Code that has:

1. Any taxable income for the tax year,
2. Gross income of $600 or more (regardless of taxable income), or
3. A beneficiary who is a nonresident alien.
4. If you held a qualified investment in a qualified opportunity fund (QOF) at any time during the year, you must file your return with Form 8997 attached.

A trust is a domestic trust if it meets both of the following tests:

1. Court test: A U.S. court can exercise primary supervision over the trust administration.
2. Control test: One or more U.S. persons have the authority to control all substantial decisions of the trust.

A trust that isn’t a domestic trust gets treated as a foreign trust. If you are the trustee of a foreign trust, you must file Form 1040-NR instead of Form 1041. Also, a foreign trust with a U.S. owner generally must file Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner.

Exceptions

If the trust (or a portion of the trust) is a grantor type trust, it must follow special reporting requirements outlined by the IRS in Instructions for Form 1041 and Schedules A, B, G, J, and K-1, page 13. Grantor trusts allow the grantor (the person or people who created the trust) to have certain powers and ownership benefits. Grantor trusts are generally ignored for income tax purposes, and the IRS considers the income, deductions, etc., as belonging to the grantor.

Note: Two or more trusts are treated as one trust if the main reason for the trusts is to avoid paying taxes AND they have the same grantors and beneficiaries. This rule only applies to the portion of the trust that comes from contributions (assets added to the trust) after March 1, 1984. In other words, any money or property added to the trust after that date will be subject to this “combining” rule if the criteria are met.

Income to report on Form 1041

Income for Form 1041 includes money earned by the estate or trust from sources such as:

• Rental income
• Capital gains from investments
• Dividends and interest
• Income tax liability for the estate or trust
• Business income
• Final paychecks

It’s essential to separate income earned before and after the date of death, as only the latter is reported on Form 1041. The former gets reported on Form 1040.

Common deductions for estates and trusts

Here is a short list of common tax deductions and exemptions that can lower the estate’s taxable income:

• $600 exemption
• Executor fees (deductible if the estate pays the executor for their services)
• Professional fees for lawyer and accountant costs
• Administrative expenses, such as court filing fees
• Required distributions to beneficiaries
• Charitable contributions made by the estate or trust

When claiming deductions or tax credits, note that you may also have to file Schedule I, which is used to figure alternative minimum tax for estates and trusts.

How to calculate the income distribution deduction for Form 1041

The income distribution deduction allows an estate or trust to reduce its taxable income by the amount of income it distributes to its beneficiaries during the tax year. This deduction ensures that income is taxed only once — at the beneficiary’s level — rather than both the trust and beneficiary being taxed on the same income.

To calculate this deduction, use the distributable net income (DNI) as the maximum limit. DNI represents the estate or trust’s total income minus certain allowable deductions like charitable deductions and expenses for administering the estate. Distributions to beneficiaries cannot exceed the DNI amount. To avoid errors on Form 1041 and Schedule K-1, make sure you properly assign income and document how it was distributed.

Form 1041 FAQs

Who pays the income tax for estates?

The estate only pays income taxes on income generated between the owner’s death and asset transfer to beneficiaries. The estate itself is not responsible for paying income taxes if its assets are distributed to the beneficiaries before earning income. In this case, the beneficiaries are responsible for paying any tax due on that amount. Beneficiaries will receive a Schedule K-1 for Form 1041, which details their share of income from the estate or trust.

What is Schedule K-1 in Form 1041?

Schedule K-1 reports each beneficiary’s share of income, deductions, and credits. As an estate or trust beneficiary, you’ll use Schedule K-1 to report income on your personal income tax return (Form 1040).

What is considered income for Form 1041?

Income generated between the estate owner’s death and the transfer of assets to the beneficiary gets reported on Form 1041. This income can come from stocks, bonds, rented property, mutual funds, final paychecks, savings accounts, etc.

Do I need to file IRS Form 1041 for an estate?

If the estate generates a gross income of $600 or more or has any nonresident alien beneficiaries, you generally must file Form 1041.

Who needs to file a trust tax return?

Trustees managing a trust that earns any taxable income, gross income of at least $600 (regardless of taxable income), or has nonresident alien beneficiaries must file Form 1041.

Do all trusts and estates have to file Form 1041?

Not every estate or trust is required to file Form 1041 for the income it earns. The form is unnecessary if the estate has no income-producing assets, or its annual gross income is less than $600. The only exception is if one of the grantor’s beneficiaries is a nonresident alien. In that case, the estate’s income total does not matter, and a federal tax return must be filed. The estate executor or personal representative must also file the estate tax return using Form 706.

The IRS allows electronic filing of Form 1041. You can e-file Form 1041 for deaths occurring in the current or past two tax years. You can also search for prior year forms and instructions on the IRS website.

Do you have to file Form 1041 if there is no income?

You do not have to file Form 1041 if the estate generates no taxable income unless one of the beneficiaries is a nonresident alien.

When is the due date for Form 1041?

The deadline to file Form 1041 depends on the tax year being used. The estate or trust tax year sometimes differs from the traditional calendar tax year:

• If the estate operates on a calendar year, the return is due by April 15.
• If it operates on a fiscal year, the return is due on the 15th day of the fourth month after the fiscal year ends.

Typically, the estate calendar year starts on the day of the estate owner’s death and ends on Dec. 31 of the same year. However, the executor can file an election to choose a fiscal year instead. A fiscal year means the tax year ends on the last day of the month before the one-year anniversary of death, which may give you more time to file. The executor then has up to 12 months to file the income tax return, and the estate tax return is generally due four months after the close of the tax year.

Example due date calculation

Joe passed away on June 1, 2022, and his executor distributed all the estate’s assets by Dec. 15 of the same year. Before the assets were passed on to the beneficiaries, they earned $1,200. This is greater than the $600 exemption, which means the estate must file an income tax return.

In this instance, the tax year starts on June 1, 2022 (the date of death), and ends on Dec. 31, 2022, making Form 1041 due April 15, 2023, unless the executor elects a fiscal year. If a fiscal year is chosen, the tax year will end on May 31, 2023, making Form 1041 due four months later on Sept. 15, resulting in more time to file.

What is the penalty for late filing of Form 1041?

The late filing penalty for Form 1041 is 5% of the tax due for each month (or part of a month) that the tax return is late, up to a maximum of 25%.

Can I request an extension for Form 1041?

Yes. If you need additional time to submit Form 1041, you can use Form 7004 to request an automatic extension. This form allows you an additional 5½ months to file, giving you the extra time you may need to get everything in order. TaxAct can help you file Form 7004 if you e-file Form 1041 with us.

What is the difference between a simple trust and a complex trust?

Trusts are usually classified as simple or complex. Simple trusts must allocate all income earned to their beneficiaries and cannot accrue income. A simple trust also cannot designate a charity as its beneficiary or distribute its corpus (principal).

Complex trusts refer to any trust that does not qualify as a simple trust. These trusts offer greater flexibility than simple trusts, especially when dealing with large estates or the added complication of several beneficiaries.

What else will I need when filing Form 1041?

• Taxpayer identification number: After the grantor’s death, the estate is its own taxable entity. To file IRS Form 1041, the executor must obtain an employer identification number (EIN) for the estate or trust. An EIN is a nine-digit number assigned to the estate or trust for tax payment purposes. You can easily apply for an EIN on the IRS website.
• Schedule K-1 for beneficiaries: The estate must send Schedule K-1to all beneficiaries reporting any asset distributions they received. As a beneficiary, you will refer to Schedule K-1 for the income amount you should report from the estate on your personal income tax return. Some income categories reported on Schedule K-1 include capital gains, interest earnings, rental real estate, or ordinary business income.

Reporting income from estates and trusts: How to file Form 1041 with TaxAct

Filing Form 1041 doesn’t have to be complicated! TaxAct’s intuitive tax software guides you through the process step by step, ensuring you meet all the filing requirements while helping you maximize any tax deductions or credits available to the estate or trust.

Head over to TaxAct Estates and Trusts to get started. If you need help during the tax filing process, we also have detailed instructions for:

• How to enter distributions from Form 1041
• How to enter deductions for Form 1041
• How to enter Schedule K-1 for Form 1041

Need more time to file Form 1041? Don’t forget that TaxAct can also help you file an extension for Form 1041 by submitting Form 7004 to the IRS. Dealing with estate and trust taxes is taxing enough — this ensures you can take the necessary time to prepare while avoiding penalties for late filing.

The bottom line

Filing taxes for an estate or trust may not be your idea of fun. But with TaxAct’s help, it doesn’t have to feel impossible. By understanding Form 1041 and staying organized, you’ll conquer your income tax return like a pro this year.

All TaxAct offers, products and services are subject to applicable terms and conditions.

This article is for informational purposes only and not legal or financial advice.

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