What is the K-1 Tax Form?
Schedule K-1 (Form 1041) Beneficiary’s Share of Income, Deductions, Credits, Etc. is an informational tax form that shows the beneficiary’s share of an estate or trust. The share may include income, credits, deductions, and profits. This form shows the pass-through of tax responsibility from the estate or trust to the person or entity that benefits from it.
Who should file Form 1041 K-1 and why?
An estate or trust is responsible for filling out Form 1041 Schedule K-1. It shows that the estate itself is passing the obligation of taxes to the beneficiary of the estate. If the estate is not producing income or its annual gross income is less than $600, then it does not have to file a Schedule K-1 but may still be required to file Form 1041. There is one exception to this rule: if a beneficiary is a nonresident alien, then this form must be filed, no matter the income amount.
Who pays the income tax for estates or trusts?
The beneficiaries are responsible for paying income tax distributed to them by the estate. They are only responsible for paying taxes on the income distributed to them consistent with the income distribution deduction, not the whole amount. If there are multiple beneficiaries, each beneficiary will typically receive a Schedule K-1 to report on their tax return, depending on the terms of the trust agreement or will. The estate itself should only pay taxes if it has no beneficiaries who are receiving assets before the estate earns income.
Who needs to be sent a Form 1041 K-1?
Any beneficiaries that receive Distributable Net Income (DNI) must be sent a Schedule K-1 to report on their tax return.
When is the tax year for estates?
Sometimes the estate tax year can vary from the calendar year. The estate calendar year usually begins on the day of the estate owner’s passing and ends on December 31 of that same year, even if this period is not 365 days. However, the executor can petition to have the tax year end on the last day of the month before the estate owner’s one-year anniversary of death. This gives the executor 12 months to file the return.
Are there any deductions that can lower the estate’s taxable income?
Yes, they include:
- Professional fees from a lawyer or accountant
- Court filing fees
- Executor fees if the estate is paying the bill
- Required distributions to beneficiaries
What makes this version of Schedule K-1 unique?
An estate is not a business, so this schedule operates very differently from Form 1065 Schedule K-1 and Form 1120S Schedule K-1. For more information on the differences between forms, read this article.
The information in this article is up to date for tax year 2021 (returns filed in 2022).