Estate Income Tax Return - Accounting Period

[neilbrink]

I just received an income tax return estate case where the decedent died on May 10, 2013. There has been no 1041 form filed to date. The estate is ready to close with the sale of farmland completed in May of 2014. Is it too late to go back and file a short year for 2013, and then do a final return for 2014? Thanks in advance.

[SaraEA]

Just put the estate on a fiscal year. You do that by filing its first tax return with the FY May 10, 2013 to April 30 2014. Due date of the return is August 15. This is best for the beneficiaries, who likely already filed their 2013 returns, because they won't have to go back and amend. Whatever the K-1 shows will go on their 2014 returns because that is when the FY ends. The sale of the land will go on the next return, FY May 1 2014-April 30 2015, so they'll have plenty of time to do tax planning as the profits will go on their 2015 returns (filed in 2016).

This won't work for the beneficiaries if the estate had a lot of income between May 2013 and April 2014 and didn't make any distributions. The estate will pay taxes on that income at a far higher rate than the beneficiaries likely will.

Farmland might get special treatment under the tax code. Better do some research on that point.

[Randall]

I agree with SaraEA. Besides, if you opt for calendar year, the 2013 return would have been due April 15, 2014 unless you filed an extension. I assume the extension was not filed since you just received this info.

[neilbrink]

We will go ahead and file it late. There was only $15 of interest income during the short year, so no tax liability. Then we can do a final at the end of the calander year.

[windmill]

I thought in the year of death, the decedent could/would file an individual Form 1040 for the year ending Dec 31, 2013 and the Estate Form 1041 would then have a calendar year, Jan-Dec 2014. That's how I handle this type of case.

[Lion EA]

The final 1040 is for the part of the year the decedent was alive. Then the first 1041 begins and can have a calendar year (short for the first year) or a fiscal year ending on the end of any month less than 12 months after DOD.

[SaraEA]

If the estate only had $15 of income, it is below the filing threshold and doesn't have to file a return. Just file a 2014 return reporting the sale of the land and any other income. Filing for 2013 would be unnecessary and expensive for the clients. (Our estate returns start at $500 and go up from there.)

[Lion EA]

Is there a spouse? Spouse may benefit from the portability election.

[michaelmars]

is there a profit on the land?   basis is value on date of death so usually the profit or loss is very small [i don't know if farmland is different than other land].  And Lion is correct that if there is a spouse you should file a 706 for portability.