People who are beneficiaries of trust funds or an estate are common nowadays. If you are one, you may have to file a form to report your income for the current year. This form is called Form 1041, Income Tax Return for Estates and Trusts Schedule K-1. The incomes that are included in this form will be reported in your own income tax return on specific schedules and specific lines. Here are the ways on to report income from a Schedule K-1.
- Review. You will receive a fiduciary of your estate or trust. Go over the Schedule K-1 of this fiduciary to check if the amount you received during the past year is the same as the amounts indicated. If there are any discrepancies in the fiduciary, it may be necessary for you need to file for a revised Schedule K-1 to resolve them.
- Report. Once the Schedule K-1 is okay, report the share of the investment as it is shown on your Schedule K-1 on the individual tax return. Account for the report interest as well as the dividends that are seen on Line 8 and Line 9 of the Form 1040. Report the capital gains that are seen on Line 5 and Line 12 of the Schedule D.
- Complete the information. Be sure to include the rental income, annuity income, business or trade income and royalties on the Schedule E of the Form 1040. Any amount of income for the minimum tax purposes will be reflected on the Form 6251 if it is required.
- Deduct. Do not include any of your foreign taxes on the Schedule A of the Form 1040. You may use them, if you want, as the Foreign Tax Credit in the sections for credits of the return. This will also be more advantageous. If you have a deduction for an estate tax, you should include this in the deduction for taxes in the Schedule A part of the Form 1040.
- Use information that occurs in the final year. Be sure to only include the deductions, if it is shown in the Line 13 part of your Schedule K-1, which only happened during the last year of the estate or trust. The income for tax exempt interest that is shown in the Line 14 of your Schedule K-1 should also be reported in the Line 8b part of the Form 1040, even if it would not have an effect on the tax liability.
- Double-check. Be sure to go over your deductions for the IRS after you are finished with it. Make sure you have filled out the information in the correct part of the Form 1040. You may want to recheck your computations to make sure you correct any mistake that you may have done before.
There is no need to worry if you are reporting the needed information. Reporting your income from a Schedule K-1 will be easy if you know what you need to put in it and what not to. Follow the instructions above and you’ll be ready to report your income in no time.