Decedent Tax Return 1041 Filing Requirement
When someone dies and leaves property behind, the property forms an "estate." Until probate court passes the property in the estate to the deceased person's heirs, the estate remains a separate legal entity. Because estates may earn income, the Internal Revenue Service sometimes requires them to file a federal income tax return.
General Guidelines
According to the IRS, an estate must file a tax return using Form 1041 if it earned more than $600 of gross income during the tax year or has a beneficiary who is a nonresident alien. Estates who meet these requirements must file a return regardless of their net value. Like any other tax return form, Form 1041 is due April 15 of the following year. The IRS accepts forms filed by mail or electronically.
Filing and Paying Tax
When an estate enters probate, the court names an executor to represent it for legal purposes. The executor is responsible for completing the estate's tax return, signing it and submitting it on time. If the estate owed any tax in the previous year, the executor must also make estimated tax payments from the its available funds each quarter. If the estate didn't owe tax during the previous year, estimated tax payments are optional.
Penalties
The IRS imposes penalties for underpaid taxes and late returns. For each month that a tax return is late, the IRS assesses a penalty equal to 5 percent of the tax due, up to a maximum penalty of 25 percent. The IRS also charges interest on unpaid tax. If the executor failed to pay enough estimated tax during the year, the IRS may charge an additional penalty. To avoid a penalty for underpayment of estimated tax, estates must pay estimated tax equal to 90 percent of the current year's liability or 100 percent of the previous year's liability, whichever is smaller.
Trusts
The IRS requires trusts that earn more than $600 of gross income or any amount of taxable income during the year to file Form 1041 as well, regardless of whether the grantor is deceased. If a grantor is deceased and the trustee has elected to make the trust part of the estate for tax purposes, the estate's executor must include any income earned by the trust on Form 1041 as well. Otherwise, the trust must file separately.
References
Writer Bio
Amanda McMullen is a freelancer who has been writing professionally since 2010. She holds a bachelor's degree in mathematics and statistics and a second bachelor's degree in integrated mathematics education.