An estate or trust required to fileForm 1041(United States Income Tax Return for Estates and Trusts) might pass certain items of income and deductions to its beneficiaries through IRS Schedule K-1. So, if you’re a beneficiary, you must pay tax on your share of income – and you can also claim credits and deductions on that income. Read on to learn more about the K-1 form, including its definition and K-1 instructions.
Schedule K-1and Form 1041
If beneficiaries receive the income established from a trust or estate, they must pay income tax on it. An estate or trust that generates income of $600 or more; and estates with nonresident alien beneficiaries must file a Form 1041.
Income received from the trust or estate and deductions and credits is reported to beneficiaries on a K-1.
What is a K-1?
While we may have answered the question, “what is a K-1?” let’s elaborate further.
The estate or trust will send you a Schedule K-1 showing what you must report on your return.
The IRS Schedule K-1 can include:
- Credits to reduce your taxable income
- Deductions to reduce your taxable income
- Investment income, like interest, dividends, and capital gains
- Passive income, like rental income
How you report the income depends upon the type of income you’re reporting.
Keep in mind, there are other types of K-1s.
- Schedule K-1 (Form 1065): This is used to report pass-through income to shareholders or partners in a business on Form 1065.
- Schedule K-1 (1120S): This form is used to report pass-through income to S corporation shareholders in a business on Form 1120-S.
It’s possible to get multiple versions of the Schedule K-1 in the same tax year – the K-1 (1065), the K-1 (1120-S) and K-1 (1041). For example, this would be the case if you were a partner in in a partnership and you received income as the beneficiary of an estate.
K-1 tax form deadline for an estate or trust
A K-1 form is typically received later than when you receive Forms W-2 or 1099.
This is because estates and trusts need extra time to calculate the tax information as they apply to each beneficiary. Due to the additional time needed, the K-1 tax form deadline for calendar year estates and trusts is April 15 each year. (For fiscal year estates and trusts, the K-1 tax form deadline is the 15th day of the fourth month following the close if the estate or trust tax year.)
What to do with a K-1 tax form
If you received a K-1 tax form from a fiduciary, you should use it to help calculate your taxable estate or trust income on Form 1040. A copy of the K-1 tax form should be sent along with your return if your backup withholding is reported on Box 13, Code B.
The fiduciary will file a copy of the form.
Keep a copy of the K-1 tax form if the IRS happens to have questions about the income reported.
K-1 instructions
While you probably don’t need to fill out the form as an individual receiving income from an estate or trust, it’s good to know Schedule K-1 instructions that fiduciaries follow, so you understand how to interpret the form for your own income tax return.
The form is straightforward. It’s a one-page form with three parts.
Part 1: Includes information about the estate or trust, including its:
- Name
- Employer Identification Number
- Name and address of the fiduciary responsible for handling the estate
Part 2: This section contains information about the beneficiary, including their name and address. It also has a box indicating if the beneficiary is a domestic or foreign beneficiary.
Part 3: This section reports the beneficiary’s share of income, credits, and deductions in a tax year. These “tax attributes”, as they are sometimes referred to, are used by the beneficiary to correctly report income of the estate on the beneficiary’s own Form 1040 tax return. These attributes include:
- Rental real estate income from an estate
- Interest income
- Net short- and long-termcapital gains
- Ordinary and qualified dividends
- Tax credits and credit recapture
- Tax deductions and adjustments, including alternative minimum tax adjustments, depreciation, depletion, amortization, directly apportioned deductions, estate tax deductions, and final-year deductions
- Unrecaptured Section 1250 gains
On the back of the K-1, there are instructions for each box of the K-1 and provides descriptions of the codes on the front of the form, these instructions will direct where the beneficiary reports the income on the Form 1040.
Received a Schedule K-1? Get tax help
So, if you need assistance interpreting a Schedule K-1 (Form 1041), we can help. You shouldmake an appointmentwith one of our knowledgeable tax pros who can help you with an accurate tax return with every tax credit and deduction you deserve.
FAQs
Schedule K-1 is a tax document that reports a beneficiary's share of income, deductions and credits from a trust or estate. Capital gains and losses are often not distributed to beneficiaries since they are considered part of the trust corpus.
What is the schedule k1 for estate or trust income? ›
The estate or trust uses Schedule K-1 (541) to report your share of the estate's or trust's income, deductions, credits, etc. Your name, address, and tax identification number, as well as the estate's or trust's name, address, and tax identification number, should be entered on the Schedule K-1 (541).
What is Schedule K-1 Box 14 form 1041? ›
The Schedule K-1 has a code H in box 14 to report the amount of net investment income distributed to the beneficiary. The amount reported in code H represents an adjustment (either positive or negative) that the beneficiary must use in completing its Form 8960 (if necessary).
Is income from an estate or trust included in federal gross income? ›
Summary. The gross income of a trust or estate reported on Form 1041 is determined using the same rules for individual taxpayers regardless if the income is distributed to a beneficiary. Similar rules for categorizing types of income also apply to trusts and estates.
Do beneficiaries pay taxes on trust distributions? ›
When trust beneficiaries receive distributions from the trust's principal balance, they don't have to pay taxes on this disbursem*nt. The Internal Revenue Service (IRS) assumes this money was taxed before being placed into the trust.
Is a K-1 from an estate taxable? ›
If you are the beneficiary of a trust or estate and you receive a K-1, you need to include the amounts from the K-1 on your personal income tax return.
Do beneficiaries of an estate get a k1? ›
Any time a beneficiary receives any income from Trust earnings throughout the year, a Schedule K-1 will report them to the IRS. K-1s are also used to report any deductions or credits that come from an estate or a Trust, too.
Does Schedule K-1 need to be filed with 1041? ›
Schedule K-1 and Form 1041
An estate or trust that generates income of $600 or more; and estates with nonresident alien beneficiaries must file a Form 1041. Income received from the trust or estate and deductions and credits is reported to beneficiaries on a K-1.
What do I do with a Schedule K-1 Form 1041? ›
Use Schedule K-1 to report a beneficiary's share of the estate's or trust's income, credits, deductions, etc., on your Form 1040 or 1040-SR. Keep it for your records. Don't file it with your tax return, unless backup withholding was reported in box 13, code B.
What is a Schedule K for a trust? ›
Schedule K-1 (Form 1041) is an official IRS form that's used to report a beneficiary's share of income, deductions and credits from an estate or trust. Its full name is “U.S. Income Tax Return from Estates and Trusts” The estate or trust is responsible for filing Schedule K-1 for each listed beneficiary with the IRS.
When someone dies, their assets become property of their estate. Any income the assets generate become part of the estate and may require you to file an estate income tax return.
Does trust income count as income? ›
Income Tax. Given that many trusts earn income, taxes will need to be paid on that income, just as most individuals and businesses have to pay taxes on the income they earn. Taxable income for trusts can be divided into two broad categories, each with its own set of rules: ordinary income tax and capital gains tax.
How is income from a trust reported? ›
Typically during the creator's lifetime, the taxpayer identification number of the trust will be the creator's Social Security number. All items of income, deduction and credit will be reported on the creator's personal income tax return, and no return will be filed for the trust itself.
Are distributions from a trust reported on K-1? ›
Reporting Taxable Trust Distributions
When a trust distributes income to one or more beneficiaries, the trust takes a deduction using Form 1041. It then issues a K-1 Trust Distribution Form to each beneficiary. This form shows the amount that was distributed and how much was attributed to income versus principal.
How do you distribute trust income to beneficiaries? ›
The trustee can write the beneficiary a check, give them cash, and transfer real estate by drawing up a new deed or selling the house and giving them the proceeds.
What happens when you inherit money from a trust? ›
When you inherit money and assets through a trust, you receive distributions according to the terms of the trust, so you won't have total control over the inheritance as you would if you'd received the inheritance outright.
Is trust income reported on a K-1? ›
Use Schedule K-1 to report a beneficiary's share of the estate's or trust's income, credits, deductions, etc., on your Form 1040 or 1040-SR. Keep it for your records.
Is a 1041 a k1? ›
For detailed reporting and filing information, see the Instructions for Schedule K-1 (Form 1041) for a Beneficiary Filing Form 1040 or 1040-SR and the instructions for your income tax return.
Does an irrevocable trust issue a K-1? ›
It's important to note that while the income on the trust is taxable, the principal is not. Each beneficiary will receive a Schedule K-1, which will detail the amount paid, as well as the income and losses on the trust. They'll report the income on their Form 1040, Schedule E, Part III.
While we may have answered the question, “what is a K-1?” let’s elaborate further.