1041 Estate Final Return Under $600

[GLGACCT]

Will be filing a short tax return to wrap up an Estate, the income will be under $600.  On a final return the income would be passed to the beneficiaries via a K-1 and the exemption of $600 will be lost.  However, this estate is under the minimum threshold to file, but it’s the final year and a distribution of cash will be made to the sole beneficiary.  What is the correct way to file the final return?

[DANRVAN]

Probably not if gross less than $600.  

On 2/9/2023 at 9:01 AM, GLGACCT said:

On a final return the income would be passed to the beneficiaries via a K-1 and the exemption of $600 will be lost.

Still no need to file since gross is below $600, and net further reduced by legal and accounting fees.

And most like there is not any capital losses or other tax benefits to pass through on K-1s.

 

[Sara EA]

While you don't have to file the 1041, if there are probate and legal fees that are substantially more than the income and can benefit the beneficiary, go ahead and file.

[DANRVAN]

1 hour ago, Sara EA said:

While you don't have to file the 1041, if there are probate and legal fees that are substantially more than the income and can benefit the beneficiary, go ahead and file.

Excess deductions on termination.

The 2020 Treasury reg. made that possible after TCJA took it out.  There is an allocation process to follow.

 

[GLGACCT]

Thank you for the replies. On this estate, previous returns have been filed and this will be the final return. The executor wants to file the tax return and mark it final as to avoid any future problems.

There is only one item of income to be received and little to no expenses, as this estate has been open for a few years.  When marking the return as final, the income becomes distributable via a K-1 and the sole beneficiary/executor will pay tax on the income.

Prepared a few 1041’s, in the past but all have been over $600, never had one under $600 in the final year. This estate is under the minimum threshold to file, but it’s the final year and a distribution of cash will be made to the sole beneficiary. The $600 threshold is tripping me up.

If TP wants to file a final return, is the income fully taxable to the beneficiary via K-1 as the estate is terminating regardless of the $600 threshold or do you override the return inserting the $600 exemption even though the exemption is not allowed in the final year, but the return is under the $600 threshold (have not come across any examples that this is allowed) or is there another way to finalize that I am missing? 

[DANRVAN]

2 hours ago, GLGACCT said:

If TP wants to file a final return, is the income fully taxable to the beneficiary via K-1 as the estate is terminating regardless of the $600 threshold or do you override the return inserting the $600 exemption even though the exemption is not allowed in the final year, but the return is under the $600 threshold

If you are going to file a final return with income under $600, then should probably go ahead and report on K-1 and show as an income distribution deduction.  That will result in a complete and accurate tax return whether required to file or not.

 

[Sara EA]

You can always amend the 2021 estate return, changing nothing but marking it as final so IRS isn't looking for another one.  That puts the onus on the beneficiary to voluntarily report the income.  Remember that the Code states that all income regardless of source is taxed, unless exempted by the "grace of congress."  Six of one and half dozen of the other.  I'd go ahead and file the final 1041. Remember the explanation as to why the estate has been open for more than two years.