Form 1041 Deductible Expenses: Trust and Estate Income

Estates and trusts may need to file Form 1041 Deductible Expenses on their annual income tax returns. Not every estate and trust return requires this form, however.

When Do Estates and Trusts Need to File Form 1041 Deductible Expenses?

Estates have to file this form when:

• A beneficiary of the estate has nonresident alien status
• The estate earned at least $600 during the tax year in question

Trusts must file this form when:

• A beneficiary of the trust has nonresident alien status
• The trust earned at least $600 in gross income during the tax year in question
• The trust earned any amount of taxable income during the tax year in question

Generally, an estate's administrator or executor files Form 1041 with the estate's annual income tax return if necessary. With irrevocable trusts, the trustee files Form 1041 during the trust creator's lifetime and after their death. Revocable trusts require the successor trustee to file this form only after the trust creator's death.

Form 1041 allows estates and trusts to reduce the amount of income that can be taxed by deducting expenses associated with income generation. These expenses may include professional attorney and accountant fees, fees paid to the trustee or executor, local and state tax payments, distributed trust income, qualified business income, mortgage insurance premiums and interest and charitable donations.

What Types of Income Do Estates and Trusts Earn?

Estate assets may create income from the time the owner dies until the executor or administrator settles the estate. Trust assets may create income during the owner's lifetime as well as after death, depending on the type of trust. Common categories of estate and trust income include income from rental properties, capital gains, ordinary dividends, interest income from bank accounts and investments, royalties, business income, farm income and outstanding wages paid to the deceased person.

How and When Do Estates and Trusts File Form 1041?

The trustee or estate administrator can file income taxes based on the fiscal or calendar year. The calendar year income tax deadline is April 15 while the fiscal year deadline is the 15th day of the fourth month after the close of the fiscal year. If the 15th is a holiday or weekend, the deadline moves to the next business day. If necessary, the trustee or executor can file IRS Form 7004 to get a 5.5-month extension.

Form 1041 requires the preparer to list the trust or estate's income, available credits and deductible expenses. It requests information about income distributed to beneficiaries, charitable giving, estimated tax payments and tax credits. Estate administrators and trustees can file Form 1041 either online or by mail.