Estates and trusts are taxed on income they earn, just like individuals. Assets (stocks, bonds, rental property and other interest- and dividend-producing assets) owned by an individual become part of the estate upon their death. Income generated by these assets must be reported to the IRS by the trust or estate. Estates and trusts pay taxes based on rates set by the IRS each year.
Which Estates and Trusts Must File a Form 1041?
The following estates are required to file Form 1041:
- Estates with gross income of $600 or more for the tax year
- Estates with a beneficiary who is a nonresident alien
The following trusts are required to file Form 1041:
- Trusts that have any taxable income at all
- Trusts that have a gross income of $600 or more regardless of taxable income
- Trusts with a beneficiary who is a nonresident alien
An estate must obtain a tax ID number in order to file a Form 1041. (It is called an employer identification number, or EIN, regardless of whether the estate actually employs anyone.) Estate executors can apply to the IRS for an EIN by mail, fax or online.
2019 Estate and Trust Income Brackets
- $0 to $2,600 in income – 10% of taxable income
- $2,601 to $9,300 in income – $260 plus 24% of the amount over $2,600
- $9,301 to $12,750 in income – $1,868 plus 35% of the amount over $9,300
- Over $12,750 in income – $3,075.50 plus 37% of the amount over $12,750
Trusts and estates can take certain deductions on their returns. For instance, an estate could claim a deduction for an asset that is transferred to a beneficiary. These types of income distributions are reported on Schedule K-1. After distribution, the asset is reportable by the beneficiary as income.