Like most seemingly simple questions, the answer to the question of whether you should file one or more tax returns for an estate that has yet to be finalized is “it depends.” Specifically, if and when you need to file tax returns on behalf of a decedent depends on the following:
With the 2021 tax season upon us, it’s time to review all of your estate planning documents, especially your trusts. The IRS requires you to file Form 1041, U.S. Income Tax Return for Estates and Trusts, for each trust that received $600 or more in income during 2021 or that has a nonresident alien as one of its beneficiaries. The only exception to this requirement is a grantor trust.
Thinking about selling a highly appreciated asset such as a real estate investment, corporation or business can be overwhelming. While it is certainly a positive to have highly valued assets, navigating the tax laws surrounding such assets is a difficult process. One option that is becoming more and more popular for persons in this position is a Deferred Sales Trust.
One of the most complicated aspects of business formation is taxation. It is vital that you understand the different ways you can form a business: horror stories abound with business owners who rushed through the formation process and lived to regret it when the tax man came around or somebody launched a lawsuit.
If you are considering a deferred sales trust, it is vital that you understand the relationship between capital gains tax and the deferred sales trust. In many situations, a deferred sales trust is a great way to avoid losing a lot of money to capital gains tax, but to reap the benefits you must engage in careful estate planning.
If the total estate, including assets held personally or in trust which exceed the exemption, then the estate will be subject to estate taxes of approximately 40% of all assets that exceed the exemption.
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