[onthewaytoacpa5]

Hi everyone,

I’m really struggling understanding Estates and Trusts. First, what is the difference between the Estate Tax Return and Estate Income Tax Return. How do I know what I’m reporting in each one? For example, if there is income from a decedent, why is it included in the Estate Tax Return rather than the Estate Income Tax Return or the Decedent’s Final Income Tax Return?

Also, how do I know which items will flow to the Decedent’s Final Income Tax Return rather than the Estate Income Tax Return or Estate Tax Return?

I think I’m failing to see the big picture here. I’m very confused on how all the items flow to each return. Help would be greatly appreciated!!!

[Anonymous]

I agree with you, these two topics are difficult especially for people with limited background in tax.

What CPA review materials are you using? I would start off with the entire chapter of Estates and Trusts from your book. If the lectures in your book are not enough, grab a form from IRS online and study the instructions/background and the contents of the form.

Good luck!

[onthewaytoacpa5]

Thank you. I'm using Becker. I just went through the whole chapter, did the MC (scored 89%), but I feel like I still don't understand what constitutes each one. I feel as though the MC didn't go into enough detail and might get a SIM on this. 🙁

Any other tips from anyone else in regards to my initial post?

[ng3926a]

Estate tax returns include all assets, income, and debts up to date of the decedent death since those are all assets the decedent should have had. SOmetimes people die after dividends are declared from a stock, but before the dividends were received, so those dividends should be included in the the state. The only tricky thing is that it includes and liabilities for preparation of this estate if you choose to include it. If not, you can choose to include it on the estate income tax return.

With and estate income tax return, you include all income the estate's assets earned after death. You need to realize that not all estate assets are distributed the second a decedent dies, so for that period of time they are floating around, the income they earned is taxed on the 1041.

[onthewaytoacpa5]

@nathalia Thank you for your input. When and what types of items would hit the final income tax return of the decedent? How does that process work from the estate return to the estate income tax return to the personal final income tax return of the decedent?

[ng3926a]

estate INCOME tax return. It is exactly as the name says it, all of the income earned by the estate after the decedent's death.
Estate tax return is tax on the estate's ASSETS (asset's the decedent owned up to the date of death).

I think you should take a look at Form 706
https://www.irs.gov/pub/irs-pdf/f706.pdf

and Form 1041
https://www.irs.gov/pub/irs-pdf/f1041.pdf

[onthewaytoacpa5]

@nathalia Thank you! So when will income be reported on the decedent's personal final income tax return for the year? I believe they still need to file a personal final income tax return.

[ng3926a]

Sorry, I totally forgot to mention that.

I believe (I'm 99.9% sure) that all the income earned up until death is what goes on their tax return and the rest of the income earned during the year goes on the 1041.

One of our clients died in 2015 and so we filed all 3 of her forms recently.

She died August 16, 2015, everything earned between Jan 1-August 16 2015 was on her 1040
ALL ASSETS she physically had on and had EARNED by August 16, 2015 was on her 706. (Another example would be, I get paid every two weeks, if I die before i receive my paycheck, the amount for days I actually worked needs to be included in my estate)
All income her estate earned between August 16-Dec 31 2015 was on her 1041.

Please someone correct me if I'm wrong, but I'm 99.9% sure that's what we did. I'm currently studying for BEC so all the info about things I barely do (we have a client die MAYBE once every 2-3 years) are out the window.

[onthewaytoacpa5]

@nathalia that makes so much sense. thank you so much for that!!!!

i feel like your explanations are so clear, so if you don't mind, i'm going to ask another topic.

i'm having difficulties with life insurance premiums/proceeds with whats taxable/non-taxable and deductible/non-deductible?

also, i'm having difficulties with federal and state income tax and tax refunds, what is taxable/non-taxable and deductible/non-deductible?

i'm not sure why those are mainly the ones i'm really confused with.

[onthewaytoacpa5]

@nathalia also, in regards to this comment, “Another example would be, I get paid every two weeks, if I die before i receive my paycheck, the amount for days I actually worked needs to be included in my estate)”

would that be included in the 1040 or 706? because you said only assets get reported on 706.

[onthewaytoacpa5]

@nathalia sorry- ignore the first reply. i just have a question about your comment. in regards to this comment, “Another example would be, I get paid every two weeks, if I die before i receive my paycheck, the amount for days I actually worked needs to be included in my estate)”

would that be included in the 1040 or 706? because you said only assets get reported on 706.

[Author]

Replies