What Is a Fiduciary Income Tax Return?

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The executor or administrator of a deceased person's estate or trust is called a fiduciary, a person who holds assets in trust for a beneficiary. One of the fiduciary's major duties is ensuring federal and state taxes and other financial obligations are paid before the estate or trust is passed to the heirs. Since 1993, the Internal Revenue Service has designated its fiduciary income tax return as IRS Form 1041, U.S. Income Tax Return for Estates and Trusts.

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Who Files a Fiduciary Tax Return?

Both trusts and estates must pay income tax on their income, just like an employee reports their wages on a personal tax return each year. To do this, the fiduciary of an estate must file Form 1041 if the estate had more than ​$600​ in taxable income or if there is a beneficiary who is a nonresident alien. In the case of a trust, the fiduciary must file Form 1041 if the trust had any taxable income or a nonresident alien beneficiary. The fiduciary signs the tax return.

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Consider also​: Who Must File Income Taxes?

What Is Taxed?

According to the IRS, Form 1041 accounts for "income in respect of a decedent," which is any income paid to the decedent after the date of death. Examples include deferred salary payable to the estate, uncollected interest on U.S. savings bonds or lump-sum distributions to the beneficiaries of the decedent's individual retirement account. Posthumous income to an estate or trust has the same character it would have had if paid to the decedent while he was alive.

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Form 1041 Deductions

Most deductions and credits allowed to an individual are also allowed for estates and trusts of a decedent, but there's one major distinction. The fiduciary can deduct from income the distributions being paid to beneficiaries because the tax on those distributions are paid by the beneficiaries, not the estate or trust.

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When to File

For estates and trusts operating on a calendar year, Form 1041 must be filed by ​April 15 ​of the year following the year of death and each April 15 thereafter. For estates and trusts operating on a fiscal year, Form 1041 must by filed by the ​15th day of the fourth month​ following the close of the fiscal year.

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The fiduciary can choose whether the tax period is the calendar year or a fiscal year. Fiduciaries can get an automatic ​five-month​ extension of time to file a Form 1041 but must pay estimated tax by the normal due date.

Consider also​: Tax Deadlines in 2021 for 2020 Tax Year

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Quarterly Tax Estimates

The fiduciary of an estate or trust must make quarterly estimated tax payments if he expects the estate or trust to owe at least ​$1,000​ in taxes after subtracting withholding and credits and if he expects the withholding and credits will total less than the smaller of either ​90 percent​ of this year's expected tax liability or ​100 percent​ of the previous year's tax liability. Fiduciaries report estimated tax payments on Form 1041.

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