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A Guide To Form 1041-ES: Estimated Taxes For Estates
A Guide To Form 1041-ES: Estimated Taxes For Estates
The financial responsibilities of an estate can feel daunting, especially when it comes to taxes. That’s where IRS Form 1041 comes into play. The form helps calculate 1041 estimated tax payments, which every estate has to pay if their liability crosses the threshold. We'll talk about the 1041-ES basics, 1041-ES instructions and how to make these payments on time.
Table of contents
Key takeaways:
- IRS Form 1041-ES helps estates and trusts pay estimated taxes throughout the year.
- You can pay via EFTPS, check, money order, or phone with payments due four times a year.
- Penalties can apply for missing payments or underpaying, even if you end up with a refund.
What are estate taxes?
Estate taxes are a type of tax that the government charges on the value of someone’s estate after they pass away. This tax is sometimes called a "death tax," but don't let the name mislead you; it's really just a way for the government to collect taxes on wealth being transferred from one person to another.
Not everyone needs to worry about estate taxes. Most estates don’t owe anything because their total value is below the exemption threshold. For 2024, it is $13.61 million.IRS Form 1041 is the main estate tax return. If you do owe taxes, you'll need to make 1041 estimated tax payments quarterly to avoid getting fined by the IRS.
Estimated taxes for estates
Estimated tax is what an estate or trust thinks it will owe for the year after taking out any withheld taxes and credits. An estate or trust usually needs to make 1041 estimated tax payments if it expects to owe at least $1,000 for 2024 after subtracting any withheld taxes and credits. This is required if the withholding and credits are less than:
- 90% of the tax on the 2024 return, or
- The tax on the 2023 return (or 110% of that amount if the estate or trust had more than $150,000 in adjusted gross income and less than two-thirds of its income came from farming or fishing). If there was no 2023 tax return or it didn’t cover a full year, the second rule doesn’t apply.
- The estate of a person who passed away or a domestic trust had a full 12-month tax year in 2023 and didn't owe any taxes for that year.
- It's the estate of someone who passed away, and the tax year ends within two years of their death.
- It's a trust owned by the person who passed away, especially if the trust is getting the remaining assets of the estate or is mainly responsible for paying off any debts, taxes, and administration costs. This applies for any tax year ending within two years after the person’s death.
Form 1041-ES instructions
Form 1041-ES is used to handle estimated tax payments for an estate or trust. By using this IRS form for estimated tax payments, you can calculate what you owe and set aside enough money to cover your payments. You can find the form on the IRS website.
The form has four main parts:
- Tax Computation Worksheet
- Estimated Tax Worksheet
- Tax Rate Schedule
- Payment vouchers
How to pay estimated taxes as an estate
When it comes to paying estimated taxes for an estate, you have a few options:
- Pay online: You can use IRS Direct Pay, Electronic Funds Withdrawal, Online Payment Agreement or through your digital wallet. You can find all the details in Publication 505.
- EFTPS (Electronic Federal Tax Payment System) : This is a secure way to handle payments. You can set up an account on the IRS website and use it to pay your estimated taxes directly from your bank account online or through your phone. Once enrolled, you can use the system to make payments at any time, following the Form 1041-ES instructions for proper payment scheduling. To make sure your EFTPS deposit is on time, submit it by 8 p.m. Eastern Time the day before it's due.
- Check or money order: You can send a check or money order to the IRS. Include Form 1041-ES with your payment. Make sure to write “Form 1041-ES” and the estate’s EIN on the check or money order. This helps ensure your payment is correctly applied according to the 1041-ES instructions. Each payment voucher has its due date listed for calendar year estates and trusts. Use the right voucher for your payment. Only fill out and send the voucher if you’re making a payment. When you do, just include a check or money order with the voucher—don’t staple or attach them. The IRS won’t accept a single check for $100 million or more. If you need to send $100 million or more, you’ll have to break it up into multiple checks, each for less than $100 million. Mail it to: Internal Revenue Service P.O. Box 932400 Louisville, KY 40293-2400
- Mobile application: You can use the IRS2GO app to pay what you owe.
- Tax software or professional: Many tax software programs can handle payments for you or you can hire a tax pro to manage them. They can use the 1041-ES instructions to ensure that payments are made correctly and on time, so you don’t have to worry about the details. Sometimes, the estate or trust might face a penalty when it files its return. This penalty is based on any underpaid amounts and how long they remain unpaid. You could get hit with a penalty if you didn’t pay enough estimated tax, didn’t pay on time, or didn’t pay the right amount. This can happen even if the estate or trust ends up with a refund on its tax return.
Paying estimated taxes for an estate is simple with Form 1041-ES. You can use EFTPS, checks, money orders, or phone payments. Just make sure to follow the payment deadlines and Form 1041-ES instructions carefully. Even if you end up with a refund, missing payments or paying too little can still lead to penalties. By staying on top of payments and following the guidelines, you can handle your estate’s taxes easily and avoid any issues.
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