Question

Final 1041 fiscal end June, 2020. Want to pay tax on 40k net rental but Turbo Tax cal $0 tax but line 7 on K-1 show income of 40k. How to pay tax on 1041 but not on K-1?

Forum|Forum|4 years ago
June 14, 2021
2 replies
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Like to pay tax on net rental inc via Form 1041 but not the K-1 so each beneficiary will not have to report the K-1 income in their 1040 returns.

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Mike9241

sorry. you should have requested tax advice before terminating the trust so you would have known the tax consequences. since the trust terminated, all assets were distributed to the beneficiaries, distributions carry out income so that the rental income is in effect is distributed to the beneficiaries who have the obligation to report this on their personal tax returns. not reporting this income could rise to the level resulting in a substantial understatement of income taxes which carries severe penalties. also, the trustee would face penalties for misreporting.

A

Anonymous_

Employee

Fiscal year 1041s are due by the 15th day of the 4th month following the close of the tax year (in this case October 15, 2020). At this point you should seek professional tax (and possibly legal) guidance.

See https://taxexperts.naea.org/listing/service/estates-gifts-trusts

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ykh2019Author

Thank you for the advice. I see why Turbo Tax did not want the Estate to pay the tax on net rental income now. I did not mention there is a LT capital loss on the sale of the property. By having the beneficiaries paid the tax on their individual return, it maximize their tax deduction with 3k of capital loss to offset ordinary income each year for 8 years ( assuming no other capital transactions) .