The Income Tax Return for Estates and Trusts
Estates and trusts that generate income during the year are subject to tax rates set by the federal government. They’re required to file IRS Form 1041, the U.S. Income Tax Return for Estates and Trusts. The tax brackets are adjusted each year for inflation, just as personal income tax brackets are. Form 1041 isn’t required if all income-producing assets pass directly to a beneficiary after death. This might be the case with real estate owned jointly with the right of survivorship or an individual retirement account (IRA) that passes directly to a spouse. Income distributions are reported on Schedule K-1, which is sent to the recipient. The IRS receives a copy as well. The asset is then reportable by the beneficiary as income after distribution.
Which Estates and Trusts Must File Form 1041?
Estates with a gross income of $600 or more for the tax year and those with any beneficiary who’s a nonresident alien are required to file IRS Form 1041. Trusts that have any taxable income at all, that have a gross income of $600 or more regardless of taxable income, or with any beneficiary who is a nonresident alien are required to file Form 1041 as well.
Estate and Trust Income Tax Brackets
Below are the tax rates and income brackets that would apply to estates and trusts that were opened for deaths that occurred in 2022. They would apply to the tax return filed in 2023. Only estates valued at more than $12.06 million were subject to the estate tax in 2022. This threshold is also indexed for inflation. It increases to $12.9 million for deaths that occur in 2023.
