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An estate is considered a taxable entity and the personal representative may, in addition to the final tax return(s) for the decedent, be required to file fiduciary income tax return(s) for the estate.
An estate, as a taxable entity, comes into being upon the death of the decedent and remains in existence until final distribution of the estate assets to the heirs or beneficiaries of the estate.
As the estate is a separate taxable entity, it must apply for a tax identification number from the IRS. The tax identification number for the estate (and not the decedent's individual social security number) must be used for all estate income tax filings.
Generally, if an estate has gross income of $600 or more on the assets of the estate during a tax year the personal representative must file an income tax return using Form 1041. Estate income must be reported annually on either a calendar or fiscal year basis, as selected by the personal representative upon filing the first return.
In addition to the Form 1041 tax return, the personal representative must file a separate Schedule K-1 for each beneficiary of the estate, and supply the social security number or tax identification number for each beneficiary. Failure to do so may result in penalties. A Schedule K-1 must also be furnished to each beneficiary.
If ancillary administration is necessary in another state, a separate Form 1041 must be filed by both the domestic personal representative (who qualified in the decedent's state of residence at time of death) and the ancillary personal representative.
Although there are some differences, the income tax liability for an estate is figured in much the same way as it is for an individual's income.
If a Federal fiduciary income tax return is due then a Virginia Fiduciary Income Tax return must also be filed on Form 770. Calendar tax year filers must file no later than May 1 and fiscal year filers must file by the 15th day of the fourth month following the close of the tax year.
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