What do I do with a Schedule K-1 (Form 1041)?

Question

It seems I am having a lot of problems with taxes today! My husband's grandfather passed away and left an inheritance to the family. In November of 2006, the lawyer or accountant of the estate sent out the Schedule K-1's (Form 1041) for the 2005 tax year. Of course, we have already filed our 2005 taxes. Do we need to amend them? Or is this filed differently (like with 2006's return)? My brother-in-law took his papers to his accountant, but he couldn't tell me what the accountant did and he's too lazy to find out. All he could tell me is that he owes about $1000 and it's not due until April 15. BUT... the person handling the estate told my father-in-law all we'd each owe is about $300, so I'm wondering if my brother-in-law's accountant even filed his correctly. And does anyone recommend a tax preparer, independent or corporation? We live in Orange County, CA.

It is dated 01/01/05 to 12/31/05. The lines with income and the boxes checked include: Line 1 (interest income), Line 2a + 2b (ordinary + qualified dividends), Line 5 (other portfolio + nonbusiness income), Box 12- Code A, Box 14- Codes A + E. We also received a NJ Beneficiary's Share of Income Attachment to Schedule D form. Are we required to file anything with NJ as nonresidents of that state? If anyone can conclude that we owe money based on the info above, must we also amend our state return? I realize I will eventually have to go to a tax preparer, but I want to understand what will happen and what paperwork I will need. I have always done our taxes myself and I am unsure if I want to trust a place like H&R Block.

Answer 1

Whether or not there are any tax implications depends upon what was reported on the K-1.

If it's a distribution of your husband's share of the estate, there are no tax consequences.

If it's a distribution of taxable income from a trust, there may be tax consequences. Since you didn't mention what was on the form -- which boxes had amounts, what the codes were, etc.-- it's not possible to say if there are any tax consequences or not.

What his brother had to pay in taxes has nothing to do with you. He could have had other taxable income and insufficient withholdings to cover his tax liability even if the K-1 amounts are not taxable.

The executor of the estate can't possibly say what you might owe since he or she doesn't have the information on the rest of your tax situation.

If you are not sure what to do based on the information on the K-1, you should consult with a CPA or tax attorney. Don't trust this to the tax prep mills; they aren't qualified to answer these questions propertly based upon my experience with them.

Answer 2

Schedule K-1 1041

Answer 3

Schedule K-1 Form 1041

Answer 4

Look closer at the K-1. If the fiscal year began in 2005 and ended in 2006 it is all 2006 income. H&R Block can handle one simple K-1 without messing it up hopefully.

Answer 5

I can only speak for the UK inheritance tax system, Lawyers & Accountants are only interested in themselves and there bills the bigger the better for them.

We found we were able to speak directly with the tax office and they were very helpful and tried to expain everything so as we were able to undersatnd it and thier advice was totally free.

The tax office has a job to do, they are happy to help if you ask.

Contact your local tax office and expain your problems and that you do not understand why you recieved a Schedule K-1 and I am sure they will go throught it with you, if not over the telphone, go to the tax office in oerson with all the information you have.

Good luck and sorry for the loss of your husbands grandfather.