1041 ESTIMATED TAX PAYMENTS

If an estate or trust owes more than $1,000 in tax for the current year, it must make estimated tax payments. The rules of estate and trust estimated payments are the same as those for individuals; that is, either 100% of the prior year’s tax (110% percent for trusts and estates with adjustable gross income of more than $150,000) or 90% of the current year tax due.

Like individuals, estimated tax payments for trusts and estates must be made in four quarterly installments. Unlike individuals, estates and revocable trusts that become irrevocable at death, are not required to make estimated tax payments until the first tax year ending 2 years after the decedent’s death.

For example: If your spouse dies March 15, 2000 and you adopt a January 31, 2001 fiscal year, the first tax year that estimated tax payments are required is the year ended January 31, 2003 (i.e. the first tax year ending two years after March 15, 2000). If the estate closes prior to February 1, 2002, no estimated tax payment is ever due.

COSTS OF ADMINISTRATION

Estates and trusts may deduct expenses incurred for the collection of assets, the payment of debts, and the distribution of the property to beneficiaries and heirs. Administration expenses include executor’s commissions, real estate commissions, attorney’s fees, court costs, appraiser’s fees, interest, accounting fees, and brokerage fees.

Administration expenses are deductible either against income on Form 1041 or as an expense of the estate on Form 706. Since it is unlikely that estate tax is due at your spouse’s death, you should deduct administrative expenses on Form 1041.