1041 - Estate income tax return with IRA

Fiduciary wants to make it easy on the beneficiaries and pay income taxes from the estate. Is that feasible for an estate?

Can the Trust pay the income taxes and then distribute the net to the benefeciaries? How would that show on a K-1's for the 1041?

The tax rates are much higher inside the estate. You want to look at the estate income tax rates, you hit the 37% rate at $12,750

Thanks. I understand the difference in rates, it's a unique situation and the tax liability is minimal regardless. Just wondering how and if it is possible.

If there are no distributions for the year the estate received the IRA proceeds, then the estate will pay the tax. Distributions can be made the following year.

Gotcha. In the following year, do you issue K-1's to the beneficiaries? If so, where and how do you show the distributions? Thanks.

Also, according to the instructions, I thought that the return should reflect (on the K-1's) all income that is distributed or is 'required' to be distributed? Does that necessitate a K-1 in year 1, regardless?

You are correct, but is the estate required to make distributions for the year in question?

No trust in place. Will doesn't suggest either way. I guess that means it falls to CA State Law and I'm not sure the state requirements for the timely distribution of IRA funds in year of the withdrawal.

Let's assume it isn't required: Year 1 estate takes withdrawal from IRA; reports and pays the taxes in year 1; Year 2, it distributes to the beneficiaries, does it even need to issue a K-1 to beneficiaries in Year 2?

Thanks.

If Year 2 only activity is distributions no federal K-1s needed. Not sure about CA.

Ok. Thanks. So essentially year 2, since in this case there is no additional income to the estate, no 1041 is even needed in year 2?!

Much appreciated for guiding me through that.

(I can't find any guidance either way for CA. My general thought is that the taxes are paid at a higher rate so I don't see any real tax liability issue.)

Here is the problem with not filing the subsequent return. If you check the final box on the 2019, I guarantee you that the software is going to kick out K-1's to the bene's for the IRA income.

To make this work, you need to file a 2020 return marked final with no other activity. Maybe you throw a couple expenses in that return.