Do you need to file Form 1041 for an estate? Do you need to distribute Schedule K-1 forms to beneficiaries of an estate?
Dealing with a deceased person’s estate can be complicated, but tax software can help you stay in compliance with minimal hassle.
This is what you need to know about taxes for estates and trusts.
If you're simply looking for the best tax software in general, check out our guide to the best tax software here.
Estate and Trust Tax Basics
If you had a parent or spouse who died during the last tax year, you’re likely required to file a tax return for that person. This person’s income that they received during their lifetime should be filed as a part of a regular tax return.
You can use any major tax software program to handle the deceased person’s income in their lifetime. But from the date of death onward, the income is attributed to the deceased’s estate.
Estates have to file an IRS Form 1041 if they (as in their estate) earn more than $600 per year. The estate also has to generate Schedule K-1 forms for any beneficiaries of the estate.
That means if a grandparent gives money to three children and nine grandchildren, their estate will need to generate 12 unique Schedule K-1 forms. The beneficiary is expected to pay any relevant taxes on income that is reported on the Schedule K-1.
It may seem weird to think of an estate earning income. After all, a deceased person isn’t earning a paycheck. However, an estate could earn interest income from accounts or dividend income through stocks. It could also earn rental or royalty income.
While the estate is in probate, the estate needs to request an Employer Identification Number (EIN) to file Form 1041 correctly. It is easy to file for an EIN online. Once you have an EIN for the trust, you can file taxes (Form 1041) for the estate.
What Tax Software Can an Estate Use to Generate Form 1041 and Schedule K-1 Forms?
If you’re in charge of an estate, you’ll need to generate Form 1041 and Schedule K-1 forms for all beneficiaries.
People in charge of a large estate will probably want to hire an accountant to help them generate all the necessary tax forms. The accountant can also help you figure out methods of transferring funds in a tax advantaged way.
However, if you’re in charge of a relatively small estate, generating your own Form 1041 and Schedule K-1 forms could be worthwhile. We could only find two software packages that allow you to file the Form 1041 and issue the Schedule K-1 forms.
H&R Block for small business supports the Form 1041, but not creating Schedule K-1 forms.
In terms of functionality, TaxAct Online 2019 Estates & Trusts is more focused than TurboTax Business, so it may be easier to use.
What Tax Software Can I Use to File Schedule K-1 From an Estate or Trust?
If you received a Schedule K-1 from an estate, you will need to file income from the Schedule K-1 on your return. Usually this means upgrading to the premium version of a software program.
For ease of use, TurboTax, TaxSlayer, and H&R Block consistently deliver great results. The lowest-cost option that supports Schedule K-1 forms is FreeTaxUSA.
While Schedule K-1 forms are tough to generate, they are usually very easy to handle using a typical tax software program.
If this sounds complicated to you (and it can be depending on how complex the estate is), you might want to enlist professional help to process the estate or trust return. This can help make sure that you don't miss anything or have any glaring errors.
Check out this guide about how to find a tax preparer near you that can help.
Hannah is a wife, mom, and described personal finance geek. She excels with spreadsheets (and puns)! She regularly explores in-depth financial topics and enjoys looking at the latest tools and trends with money.