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The fiduciary of an estate may use either the calendar year or the fiscal year as the “taxable year.”
Typically, most fiduciaries elect to use a fiscal year because it gives them more time to think about estate taxes during estate administration. A calendar year ends on December 31st, whereas the fiscal year begins on the day of the individual’s death and ends on the last day of the month before the one-year death anniversary. For example, if the decedent died on any day in March of 2022, their estate’s fiscal year would end on February 28th, 2023.
Any assets acquired by the estate during the fiscal year must be reported on a fiduciary income tax return. The personal representative or administrator of an estate should also make any estate distributions during that time.
An Example of How the Fiscal and Calendar Years Matter
Tom passed away on June 15, 2022. Tom’s rental properties, savings account, and stock will generate revenue for the estate. The personal representative of his estate will file a fiduciary income tax return at the end of his estate’s fiscal year, which is May 31, 2023.
Suppose Tom had beneficiaries of his estate, and distributions were made to them during that fiscal year. In that case, the income normally subject to estate taxes gets transferred to the beneficiaries instead. The assets and certain other expenses which occur during that time can be subtracted from the estate income.
A fiduciary should claim actual cash amounts on their tax return, not accrued funds. If a stock dividend is recorded on December 31, 2022, and the issuance date was January 3, that dividend would not be taxable in the year 2022; it would be taxable in 2023.
Talk to an Estate Planning Attorney
It is vital that a personal representative or administrator of an estate have a firm understanding of whether it makes sense to settle an estate in a custom fiscal year or the standard calendar year. Before deciding, they should talk to an accountant or estate planning attorney about the different tax ramifications. If the personal representative is able to wait several months to pay an expense to offset income that is projected for the following year, then it makes sense.
Note: Fiscal year elections are only available to estates. Trusts are generally required to be filed according to the calendar year.
Benefit from our estate administration experience, as well as caring and compassionate staff. Consult with the experienced estate planning lawyers at Russo Law Group, P.C., to discuss tax consequences using a fiscal or calendar year. We can help you make the best decisions to reduce your tax burden. Contact us or take advantage of our free seminars and webinars to learn more about how Russo Law Group, P.C., may assist you with estate administration.
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Good morning – I know this article has been up for quite a while but I am wondering how the fiduciary make the fiscal year election? The IRS (when it assigned an Employer Identification number) indicated a Form 1041 would be due on April 15th, 2020 – i.e. a calendar year end. This is the first year for the estate with a decedent’s date of death in May 2019. Is simply filing a return indicating a fiscal year end of April 30, 2020 sufficient or is there an actual election form for the first tax filing? Thank you in advance for any response.
Please accept our condolences for your loss.
Thank you for your interest in our firm’s blog and for your inquiry.
If you indicate the estate is running on a fiscal year on the initial return (in this case fiscal year would be the date of death to April 30, 2020) is sufficient to elect a fiscal year for the estate.
Another question — if someone dies in 2019 with a 401K which is distributed to the estate in 2019 and passed on out to the beneficiaries in 2019, but the estate files a fiscal year return ending in 2020, do the beneficiaries pick up the income from the K-1 on their 2019 or 2020 income tax returns?
Generally, when an estate runs on a fiscal year the K-1 will report the income in the year the return is filed. So I’m this case the distributable net income (the DNI) would be reported in 2020 and the K-1 stating the DNI would be issued to the Residuary beneficiaries in 2020 to be reported on their individual income tax in the 2020 tax year.
If you’d like to discuss this in further detail, we’d be happy to arrange a call with one of our Estate Planning Attorneys.
In your comments and examples, a tax year ending on the last day of the month before the month of death (in your example May 31, 2016 for a DOD of June 15, 2015) is only one of eleven possible fiscal years. It’s not a calendar year or 11+ month only election. Say in your example, the estate received a large IRA distribution in April, 2016. The estate could elect a March 31 fiscal year end in 2016, distribute the income in June, 2016 and not have it taxed until the beneficiaries (assuming they’re calendar year taxpayers) file their 2017 tax returns in April, 2018.
Thanks for reaching out to us.
We would need to have a more detailed discussion about the situation to properly advise you.
We are available to assist you. Please contact me at (516) 683-1717 or via email at [email protected] and I will arrange for a meeting with one of our experienced attorneys. I will also answer any questions that you may have regarding our services and legal fees.
Please Note: This reply is informational only and not legal advice. You should seek the services of an attorney for legal advice.
Sincerely yours,
Janet Corsetti, Client Service Coordinator
So my great Aunt passed away on January 18th, 2019. Will a fiscal year give me any real adavntage in filing her estate or trust return. Thank you.
RS
Thanks for reaching out to us.
In order to properly advise you as to your question, we would need to review the legal documents.
You will need to get proper legal advice as to addressing your situation and advise you as to your options.
If interested in our law firm advising you, please contact our office at 516-683-1717.
Please note this reply is informational only and not legal advice. You should seek the services of an attorney for legal advice.
Sincerely Yours
Janet Corsetti, Client Service Coordinator
Thank you for this article and post —
What would you recommend be done if Form 1041 was not required to be filed for a mid year 2018 decedent who had IRA income (no named beneficiaries) in 2020 with Federal withholding taxes.
We’d like to advise the fiscal year reporting method (ie – April 30th year end) to stretch out the K-1 for distributions from the Estate IRA that went directly to a beneficiary.
If that is not possible (the Fiscal Year End), have you ever seen or experienced passing out the Federal Withholding Taxes on the Estate 1099-R to the beneficiary who received the net directly?
Thank you!
Thank you for your email. We are available to consult with you to discuss your situation.
If interested in our law firm advising you, please contact our office at 516-683-1717.
Please note this reply is informational only and not legal advice. You should seek the services of an attorney for legal advice.
Sincerely yours,
Janet Corsetti, Client Service Coordinator
Thank you so much for this article with important information. Our father passed away in March 2020. However, I was not court appointed executer until April 2022. The estate only made enough money in 2022 to file 1041. May I use the fiscal year when I file the 2022 1041 (Mar 2022 -Feb 2023) despite no 1041 filed previous years? Then filing would be due Jun 15, 2023. Or since we did not file any 1041 for the 2 years after death, am I now required to use calendar year?
Thanks for reaching out to us and our condolences to you and your family.
It is generally advisable that you meet with a certified public accountant who can provide you with guidance on all tax related matters.
Please note this reply is informational only and not legal advice. You should seek the services of an attorney for legal advice.
Please Note: This reply is informational only and not legal advice. You should seek the services of an attorney for legal advice.
Sincerely Yours
Janet Corsetti, Client Service Coordinator
My brother was killed in a car accident on May 7, 2022. He had an IRA at TSP.org. Although I initially signed paperwork to have the IRA go from transferee-to-transferee from his account to an inherited IRA in my name, a representative at TSP.org incorrectly told me in November that I needed to open probate. With this erroneous information, I opened probate which caused the TSP to be distributed to an Estate account instead of to me.
Right now, the IRA money is sitting in a temporary estate account at TSP.org and is set to automatically distribute on May 21, 2023. The TSP delayed processing the IRA account and therefore did not transfer the IRA to a temporary Estate account (which is still being held by TSP.org until Feb 21, 2023. I am not sure if I should do calendar year or fiscal year, but it seems that the extra two weeks would be helpful in sorting out his account. However, since the funds were not even transferred to a temporary estate account until February, it seems that maybe if I file with the Calendar year, I may not need to pay taxes until the 2023 tax year. Also, I am the beneficiary of the estate and I don’t know how I would be taxed. I need help!
Thanks for reaching out to us and our condolences to you and your family.
It is generally advisable that you meet with a certified public accountant who can provide you with guidance on all tax related matters.
Please note this reply is informational only and not legal advice. You should seek the services of an attorney for legal advice.
Please Note: This reply is informational only and not legal advice. You should seek the services of an attorney for legal advice.
Sincerely Yours
Janet Corsetti, Client Service Coordinator
It’s nice that you mentioned how it is vital that a personal representative or administrator of an estate have a firm understanding of whether it makes sense to settle an estate in a custom fiscal year or standard calendar year. My coworker was chatting with me yesterday and he told me about the estate administration matters that he is working on right now. It seemed pretty difficult, so maybe he should hire an estate administration lawyer.
Thanks for also talking about the kinds of taxes to be mindful of when planning to get estate administration services. I plan to find an attorney for that soon because I’m thinking about managing my assets as I approach my eventual retirement. Proper estate management would require some legal assistance.