time to retire - too tired to deal with this!! Deceased Client and 1099-misc to estate?

[WITAXLADY]

Long time client moved to AK to teach a number of years ago -

In Dec 2020 he suddenly passed away and I received a call from his daughter to help her with the tax filing.

1040 no problem but the 1099-Misc payment that AK gives out of $15,000 this year! came in the Name of his estate.

Do I do a 1041 now? It is marked 2020 -

He has a will that his 2 children will inherit some land, no stocks - sold those 2019

So just money and a parcel of land.

If I put this on a 1041 - he owes $3,765

on his 1040 - $3,366

????

Grrr

D

 

[WITAXLADY]

1099-misc is in soc sec not EIN

[jklcpa]

The yearly dividend paid to residents from AK's permanent fund is in the range of $1,000-$2,000, so the amount your client's estate received isn't that.  It sounds more like either accrued wages paid after death or uncashed paycheck amounts that were reissued and paid to the estate. 

I think this is reported on the Form 1041, and if that's where you will report it and with the 1099-misc in the SSN of the deceased, I'd show this as an assignment of income on the 1040 to be safe.

[Abby Normal]

Where did the actual money go? Was it a check or an electronic transfer? Or was it never actually received?

If the estate received, and they paid it back out to the bene's then the income goes to the bene's.

In other words, what actually happened?

[DANRVAN]

Sounds like Income in Respect of Decedent if it was paid in 2021.

Are there any legal fees, executor fees etc to deduct?

Beneficiaries can ultimately pay the tax based on K-1's.

[Sara EA]

The income was paid after death, so it is income in respect of a decedent.  Report it on the 1040 to satisfy the computer matching, then back it out with the notation "IRD to be reported by EIN xxxxx."

Put the estate on a fiscal year, beginning on the date of death and ending Nov 30 2021.  You can use probate and legal fees as well as your fee as expenses, maybe taxes on the land while it is in the estate.  If everything is sorted out by then, the estate can close and the remaining income will pass through to the beneficiaries, who are likely to be in a lower tax bracket than the estate.  You can file the 1041 before Nov 30 using a short year if everything is settled earlier.

[DANRVAN]

13 hours ago, Sara EA said:

  You can file the 1041 before Nov 30 using a short year

A short year can also be  a powerful planning tool on the front end, especially in a complex estate that will be open for awhile.

For example, say there was no activity in the estate until the $15,000 came in July.  In that case you can file a short year ending on June 30 2021.

That allows the estate a full 12 months to incur expenses to offset the income until June 30 2022.  The estate can also elect accrual accounting to deduct additional expenses at that point.