Are you the personal representative of a West Palm Beach estate that made more than $600 this year? You probably have to file a federal tax return for the estate! Did you know that for income tax purposes a person’s estate is a separate taxable entity? What rules apply to preparing a tax return for my West Palm Beach estate?
Do I Need to File a Return?
- Keep in mind this blog is not about the estate or gift tax that is a separate idea and tax.
- Also this applies to Federal taxes so whether or not you are in West Palm Beach listen up!
- This blog is about income tax everyone’s favorite tax.
- Federal income tax that is, after all West Palm Beach and the rest of the Florida have no income tax!
- While a gift tax or estate tax can only be levied on very large estates (read over 5.43 million dollars big) the income tax may be levied on any estate that makes over $600.
- You did not read that wrong, and it is not a typo, over six hundred bucks means your paying and filing taxes for the estate!
- You may also need to file if there is a nonresident alien beneficiary.
- What does that mean?
- Also what kind of income does an estate even have?
- Common examples may be rent from rental property, salary that went unpaid to the decedent, and interest on accounts / stock dividends.
- Are any of these relevant to the estate your are administering?
- Now what?
- Well first of all you may be able to avoid this by quickly administering the estate and distributing the property.
- Make sure to tell the beneficiaries of the West Palm Beach estate that they are now responsible for any tax burdens of their newly acquired assets.
- You may want to suggest they seek tax advice and ask about steps up in basis too.
- What if that is not possible and the estate has to remain open over a year?
Filing Estate Income Tax
- So you figured out that you have to file a separate filing for the estate now what?
- The income tax return form for estates is IRS Form 1041.
- It is very similar to the Form 1040 you are likely familiar with.
- There is a special box at the top to check for the estate.
- This is also called a fiduciary return because you are filing it in your capacity as a personal representative of the estate.
- Just a friendly reminder as a personal representative you are a fiduciary.
- What does that mean?
- You will fill this form out in the name of the estate and it will have its own taxpayer identification number!
- When does the estate’s tax year begin?
- On the date that the individual dies.
- Are there any exemptions?
- Yes but only $600 dollars so most estates with any rental property or dividend paying stock usually surpass this amount.
- What about deductions?
- You can deduct a lot of things like: distributions to beneficiaries, expert witness fees and executor fees.
- Experienced Palm Beach probate litigators know how to help prepare a personal representative and are familiar with tax law.
- Are you serving as the personal representative?
- Have you made sure that the estate is in compliance with the IRS?
- Nobody wants a problem with the IRS, before or after death.