1041 & Sched K-1(1041)


P

Perplexed

I am trying to prepare these forms for my Mother's small estate and
for the life of me I can't follow the instructions. There was
$15,331.03 in interest income which I enter on A 1, $149.73 in short
term capital gains which I enter on line A 4 and the only expense was
attorney fee in the amount of $480 which goes on A 14. That is the
total of the income for this estate, this is the first and final
return. I do fine through line A 17 $15,00.76.

Now comes the income distribution to two beneficiaries, Schedule B.
Line B 1 is A 17. No tax exempt interest. B 3 & B 4 appears to be the
same as A 4 (enter it twice?) = $149.73. . B 6 is ($149.73), a
negative number.

When I add lines B 1 -6 I am including the capital gains twice times.
Once it is included in the amount in B 1, then again on B 3, B 4 and B
6 cancel each other out. ????

There is a total of $15,00.76 distributed.. the whole amount. What am
I missing for Schedule B?

Now I look at K-1. There are two equal beneficiaries. I deduce that
half of A 1 from 1041 should be entered on line 1 Part III, half of A
4 on line 3. Where do I report the distribution of the Attorney fee
and what happens with the deduction on line 20 of the 1041?

RANT: I have read the instruction for these forms and can't figure out
what to do. I visited the IRS office in Seattle, they have no
training on these forms. At their direction I called the IRS 800
number and they refused to help me walk through this. If their staff
can't give guidance what on earth do they expect an ordinary taxpayer
trying to do the right thing to do... this shouldn't be brain surgery.
 
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P

Phil Marti

Perplexed said:
RANT: I have read the instruction for these forms and can't figure out
what to do. I visited the IRS office in Seattle, they have no
training on these forms. At their direction I called the IRS 800
number and they refused to help me walk through this. If their staff
can't give guidance what on earth do they expect an ordinary taxpayer
trying to do the right thing to do
They expect you to hire an accountant, which is what I did when I faced a
1041.
 
G

Gil Faver

well, I am not an accountant. But, that does not stop me from filling out
tax forms, or responding with what I hope will be helpful comments.

Perplexed said:
I am trying to prepare these forms for my Mother's small estate and
for the life of me I can't follow the instructions. There was
$15,331.03 in interest income which I enter on A 1, $149.73 in short
term capital gains which I enter on line A 4 and the only expense was
attorney fee in the amount of $480 which goes on A 14. That is the
total of the income for this estate, this is the first and final
return. I do fine through line A 17 $15,00.76.

Now comes the income distribution to two beneficiaries, Schedule B.
Line B 1 is A 17. No tax exempt interest. B 3 & B 4 appears to be the
same as A 4 (enter it twice?) = $149.73. . B 6 is ($149.73), a
negative number.

B4 should be zero. You have no capital gains included in SCHEDULE A line 1
(you make no mention of any charitable deduction).

When I add lines B 1 -6 I am including the capital gains twice times.
no. Line B4 should be zero
Once it is included in the amount in B 1, then again on B 3, B 4 and B
6 cancel each other out. ????
Yes, B3 and B6 cancel each other out (I never undestood why this type of
thing happens so much on tax forms . . .)

Total DNI is $15,001 (your total interest income plus cap gain, less atty
fees). I do like your attempt to make some sense out of the resulting form
numbers based on your common sense. That is what led you to question your
form, and thus learn the errors you were making.


There is a total of $15,00.76 distributed.. the whole amount.
are you distributing the capital gain? You seem to be saying yes here, and
no down below where you say all of line 1 ($15331) should be distributed.
What does the governing instrument say? What is best, tax-wise, and not
improper?

What am
I missing for Schedule B?
Now I look at K-1. There are two equal beneficiaries. I deduce that
half of A 1 from 1041 should be entered on line 1 Part III, half of A
4 on line 3.
You should be referrning to the Distributable Net Income here, not the
interest income. The DNI would be the interest income, plus (perhaps) the
cap gain, less the attorney fee.

Where do I report the distribution of the Attorney fee
and what happens with the deduction on line 20 of the 1041?

RANT: I have read the instruction for these forms and can't figure out
what to do. I visited the IRS office in Seattle, they have no
training on these forms. At their direction I called the IRS 800
number and they refused to help me walk through this. If their staff
can't give guidance what on earth do they expect an ordinary taxpayer
trying to do the right thing to do... this shouldn't be brain surgery.
a valid rant, but rants will get you nowhere with taxes. They are too
complex. I will stop my own rant here, and save the moderator a few
keystrokes . . .
 
M

Mark Bole

Gil said:
well, I am not an accountant. But, that does not stop me from filling out
tax forms, or responding with what I hope will be helpful comments.
[...]
RANT: I have read the instruction for these forms and can't figure out
what to do. I visited the IRS office in Seattle, they have no
training on these forms. At their direction I called the IRS 800
number and they refused to help me walk through this. If their staff
can't give guidance what on earth do they expect an ordinary taxpayer
trying to do the right thing to do... this shouldn't be brain surgery.
a valid rant, but rants will get you nowhere with taxes. They are too
complex. I will stop my own rant here, and save the moderator a few
keystrokes . . .
It is not at all uncommon for replies in this group to refer OP's to
professional help when appropriate.

For example, many aspects of trust and estate income tax returns are
subject to specific state law, much more so than the typical Form 1040.

The Privacy Act and Paperwork Reduction Act Notice for Form 1041 shows
the following average times to complete as follows:

Recordkeeping 52 hr., 49 min.

Learning about the law
or the form 20 hr., 39 min.

Preparing the form 38 hr., 14 min.

Copying, assembling, and sending the
form to the IRS 4 hr., 34 min.

.... and that is just for the Form 1041 itself, the Schedule D, Schedule
D Tax Worksheet, Schedule J, and Schedule K-1 have additional
significant time burdens associated with them. Whether or not you
accept these time estimates, they do at least serve as a relative
indicator of complexity.

I don't see where "Perplexed" is somehow immune from the degree of
effort and sophistication required.

-Mark Bole
 
H

Han

Gil said:
well, I am not an accountant. But, that does not stop me from filling
out tax forms, or responding with what I hope will be helpful
comments. [...]
RANT: I have read the instruction for these forms and can't figure
out what to do. I visited the IRS office in Seattle, they have no
training on these forms. At their direction I called the IRS 800
number and they refused to help me walk through this. If their
staff can't give guidance what on earth do they expect an ordinary
taxpayer trying to do the right thing to do... this shouldn't be
brain surgery.
a valid rant, but rants will get you nowhere with taxes. They are
too complex. I will stop my own rant here, and save the moderator a
few keystrokes . . .
It is not at all uncommon for replies in this group to refer OP's to
professional help when appropriate.

For example, many aspects of trust and estate income tax returns are
subject to specific state law, much more so than the typical Form
1040.

The Privacy Act and Paperwork Reduction Act Notice for Form 1041 shows
the following average times to complete as follows:

Recordkeeping 52 hr., 49 min.

Learning about the law
or the form 20 hr., 39 min.

Preparing the form 38 hr., 14 min.

Copying, assembling, and sending the
form to the IRS 4 hr., 34 min.

... and that is just for the Form 1041 itself, the Schedule D,
Schedule D Tax Worksheet, Schedule J, and Schedule K-1 have
additional significant time burdens associated with them. Whether or
not you accept these time estimates, they do at least serve as a
relative indicator of complexity.

I don't see where "Perplexed" is somehow immune from the degree of
effort and sophistication required.

-Mark Bole
That's all fine for now, but shouldn't our representatives try to
simplify things? (I know it's not the job of the IRS or the state tax
agencies to simplify - it's the legislators' job).

While that's pie in the sky, how will I make sure that my inheritors
won't run into to much trouble filing? Give most everything away during
my lifetime?
 
J

joetaxpayer

Han said:
That's all fine for now, but shouldn't our representatives try to
simplify things? (I know it's not the job of the IRS or the state tax
agencies to simplify - it's the legislators' job).
I am replying as a general comment, for the fact that this issue is
non-partisan, but generally interesting.

When we had a nanny, I wanted to stay legit. The process of withholding
and paying the taxes made the OP's 1041 trust return look like a cake
walk. The state and federal Nanny paperwork was completely different,
state was pay as you go, federal was an add-on to my return. 'nuff said.

The rules regarding retirement accounts are so convoluted that even when
a civilian 'tries' to follow the rules, it seems that bankers and others
they turn to for advice don't understand the process. I posted here and
on my blog about a guy with no income who inherited $160K from his
sister, but within an IRA, he should have rolled it over to an inherited
IRA, and paid tax as he withdrew funds. In 2008 he could have withdrawn
$8950 (the sum of exemption and std deduction) with that figure rising
each year, and no taxes at all due. No one helped him, and he got hit
with a near $40K bill.

These are just two examples of the system getting too complex for our
own good.
While that's pie in the sky, how will I make sure that my inheritors
won't run into to much trouble filing? Give most everything away during
my lifetime?
Well, I'll fall back to Phil's advice. I have multiple trusts to fill
for, so I learned how to get through the paperwork. First year took days
to review, next year was less, now, I bang out 4 in an afternoon.
Your executor should pony up the $500 or so and hire a professional.
Often that's peanuts compared to making a mistake or not planning well
enough.

Joe
 
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G

Gil Faver

Well, I'll fall back to Phil's advice. I have multiple trusts to fill for,
so I learned how to get through the paperwork. First year took days to
review, next year was less, now, I bang out 4 in an afternoon.
Your executor should pony up the $500 or so and hire a professional. Often
that's peanuts compared to making a mistake or not planning well enough.

The OP's 1041 has about six lines filled out on it. And, he is willing to
put forth the effort and is seeking help. I think my response did the
trick. The heck with hiring a professional in this instance. You guys!
 
J

joetaxpayer

Gil said:
The OP's 1041 has about six lines filled out on it. And, he is willing to
put forth the effort and is seeking help. I think my response did the
trick. The heck with hiring a professional in this instance. You guys!
This wasn't the OP, but a guy trying to make it easy for his heirs. I
don't know if they have a lick of intelligence and inclination or if
they are going to be brain surgeons, making so much money that their
time is best served operating and hiring a pro. Tough to answer such a
hypothetical.
Joe
 
J

joetaxpayer

Perplexed said:
And all I am trying to do is to file a
return that tells IRS who will be be paying the tax on the income. For
several reasons I would love to report the grandson's share of the
trust's earnings on a K-1 but I know Mom wouldn't want to screw up his
SSI.
Distributions from the trust *must* be reported on the K-1, how else
would you propose to do this? I'd think Mom wouldn't want you to run
afoul of the IRS regs.

Joe
 
P

Phil Marti

Perplexed said:
Husband and I have revocable living trusts too. With this experience
I think I shall direct my trustees to sell the remainder in the trust
immediately once we have passed and include any interim gains in our
last individual tax return.
This is a prime example of why I always counsel against DIY estate planning.
When you return to your attorney to make this modification to your trust
you'll learn that it will probably create, rather than avoid, the need for a
1041. Your final tax year ends when you do, and any sale after that
couldn't appear on your final return.

The way to avoid a 1041 for the trust is for the trustee to distribute the
corpus without liquidating anything. The beneficiaries can then sell or not
sell as they wish and deal with their own tax consequences. And, assuming
the trust was drawn up to end when you both do, all you need to do is remind
your successor trustee to clean it out ASAP. No additional paperwork
required.
 
P

Phil Marti

Gil Faver said:
The OP's 1041 has about six lines filled out on it. And, he is willing to
put forth the effort and is seeking help. I think my response did the
trick. The heck with hiring a professional in this instance.
Sez you. While I have no reason to doubt what you advised OP, I have no
reason to trust it either. Nor would I rely on it without independently
verifying it elsewhere.

I never said that a reasonably intelligent person with plenty of time on her
hands couldn't figure out a 1041. My "hire an accountant" answer was
directed to OP's specific question: "What does the IRS expect me to do?"
I'll stick with that answer.

My expanded remarks about what I did when faced with a 1041 in no way
implied that it's a necessity for every executor/trustee. But I sure wasn't
going to waste my time learning everything I'd need to know. It was well
worth the money to me to hire someone I could hold accountable, rather than
relying on what could be, for all I know, a very lucky monkey sitting at a
keyboard in the ether somewhere.
 
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M

Mark Bole

Gil said:
The OP's 1041 has about six lines filled out on it. And, he is willing to
put forth the effort and is seeking help. I think my response did the
trick. The heck with hiring a professional in this instance. You guys!

I spent a reasonable amount of time looking for and eventually buying a
few books and course materials on this topic. One book I can recommend
without reservation is "Your Trustee Duties" by Holmes F. Crouch (224
pages, 2004, Allyear Tax Guides, Saratoga, CA 95070, ISBN 0-944817-71-8).

As the cover states, it's about "how to dissect a trust contract,
prepare a Form 1041, distribute income and principal to beneficiaries,
and terminate the trust". I think the author does an excellent job.

The best $25 my late parent's trust ever spent!

-Mark Bole
 
G

Gil Faver

My brother and I are co-trustees of the trust, I am executor of the
estate (such as it is). What burns brother and I is that the grandson
got a very substantial portion of the estate, we get the remainder and
grief of managing all this
There is no reason for you not to be compensated for this grief.
 
G

Gil Faver

Phil Marti said:
Sez you. While I have no reason to doubt what you advised OP, I have no
reason to trust it either. Nor would I rely on it without independently
verifying it elsewhere.
Well, of course. I will say the same thing for what a professional tells
you.

I never said that a reasonably intelligent person with plenty of time on
her hands couldn't figure out a 1041. My "hire an accountant" answer was
directed to OP's specific question: "What does the IRS expect me to do?"
I'll stick with that answer.
ok. The OP asked a lot of questions seeking help. You picked one
rhetorical question to answer. nice job!
My expanded remarks about what I did when faced with a 1041 in no way
implied that it's a necessity for every executor/trustee. But I sure
wasn't going to waste my time learning everything I'd need to know. It
was well worth the money to me to hire someone I could hold accountable,
rather than relying on what could be, for all I know, a very lucky monkey
sitting at a keyboard in the ether somewhere.
That is fine, but that is clearly not what the OP has decided for himself.
 
D

Dick Adams

The only things tax simplification proposals have ever
provided are more work for tax preparers, higher taxes,
more material for comedians.

Dick
 
M

Mark Bole

joetaxpayer wrote:
[...]
The rules regarding retirement accounts are so convoluted that even when
a civilian 'tries' to follow the rules, it seems that bankers and others
they turn to for advice don't understand the process. I posted here and
on my blog about a guy with no income who inherited $160K from his
sister, but within an IRA, he should have rolled it over to an inherited
IRA, and paid tax as he withdrew funds. In 2008 he could have withdrawn
$8950 (the sum of exemption and std deduction) with that figure rising
each year, and no taxes at all due. No one helped him, and he got hit
with a near $40K bill.
On a smaller dollar scale, but still as screwy -- a resident alien tax
client, well-educated, leaves his job and goes to graduate school.
Takes money out of 401k (still with ex-employer) to pay, gets hit with
combined fed/state penalty of 12.5%. If he had just rolled over to an
IRA first, which changes almost nothing about the nature of his
tax-favored retirement account, then he would have had an exception to
the penalty.

-Mark Bole
 
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J

JoeTaxpayer

On a smaller dollar scale, but still as screwy -- a resident alien tax
client, well-educated, leaves his job and goes to graduate school. Takes
money out of 401k (still with ex-employer) to pay, gets hit with
combined fed/state penalty of 12.5%. If he had just rolled over to an
IRA first, which changes almost nothing about the nature of his
tax-favored retirement account, then he would have had an exception to
the penalty.

-Mark Bole
Another - a woman let go from her company came to me for advice, and I
didcovered that she listened to someone else first, rolling over her
401(k) to an IRA. She was 56 at the time of seperation, she could have
tapped the 401(k) penalty free, but not the IRA. The 401(k) was huge,
and enough for her to retire on comfortably.
Joe
 
H

Han

(e-mail address removed) (Dick Adams) wrote in @reader1.panix.com:
The only things tax simplification proposals have ever
provided are more work for tax preparers, higher taxes,
more material for comedians.

Dick
Courtesy of your and mine Congresscritters, striving for reelection ...


<wry grin>
 
G

Gil Faver

Dick Adams said:
The only things tax simplification proposals have ever
provided are more work for tax preparers, higher taxes,
more material for comedians.
That is not true of all proposals, but is true of all enactments.
 
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