Estate Income Tax
When an individual passes away, another "tax-paying" entity is created, known as the "decedent's estate." If the person died prior to filing the previous year's tax return, there will be three different returns that must be filed by the estate executor (administrator). They would include the following:

  • The previous year's normal tax return (Form 1040)
  • The final tax return (Form 1040) - for the beginning of the new year to the date of death and
  • The estate tax return (Form 1041) - covering earnings from the date of death until the end of the New Year.

The estate may have an income tax filing requirement on Form 1041 for each year that it has $600 or more of gross income (or a non-resident alien beneficiary). This is calculated each year from the date of death, until the entire amount of the estate has been distributed to the beneficiaries.

"Income In Respect of a Decedent"
If a beneficiary receives income that was earned (but not paid) by the decedent before death, then this income is called "income in respect of a decedent" and it is reported on the beneficiary's tax return.

Examples include: lottery winnings, installment sale receipts, IRA distributions, etc.

Sample Questions 1 - 5

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