Estate & Trust Taxes: What You Need to Know

Do you have an estate? Do you have trust? If the answer to either of these questions is yes, then you need to know about Estate & Trust Tax Services.…

Tax

April 19, 2022

Written by John Wonneberger

Do you have an estate? Do you have trust? If the answer to either of these questions is yes, then you need to know about Estate & Trust Tax Services. The IRS requires that all estates and trusts file a tax return each year, even if no tax is due. This can be a complex process, and it’s important to work with an experienced accountant who can help you navigate the waters.

It’s important to understand Business Taxes and other types of taxes. In this blog post, we will explain what Estate & Trust Tax Services are and what they cover. We will provide some tips on how to get the most out of them! Continue reading. 

Estate Tax Return

An estate tax return, also known as Form 1041, is a document that must be filed with the IRS each year. This return is required for any estate with over $11.18 million. This return aims to report income, gains, losses, and expenses for the estate.

Estate Planning

Estate planning is creating a plan to manage your assets and affairs in the event of your death or incapacity. This can include creating trusts, wills, Powers of Attorney, and other legal documents. Estate planning can also involve gifting assets during your lifetime to minimize taxes and maximize benefits for your heirs.

When Are Estate Tax Returns Due? 

The due date for an estate tax return is 9 months after the date of death. However, if the estate owes taxes, then the return must be filed within 60 days of the due date to avoid penalties. If you file an extension before the due date and pay the expected correct amount of tax by that date, a six-month extension is permissible.

What Does An Estate Tax Return Cover?

An estate tax return covers all income, gains, losses, and expenses for the estate. This can include income from investments, property sales, and other sources. The return will also report any deductions or credits that are available to the estate.

What Is The Estate Tax Rate?

As of 2022, the federal estate tax typically applies to assets worth more than $12.6 million. The estate tax rate varies from 18% to 40%. Estate taxes are also levied in various jurisdictions. Estate taxes aren’t collected on spouses’ property unless they live separately and apart for at least 10 years without being divorced or widowed. 

Types of Estate Taxes

When dealing with estate taxes, it’s important to know which types of taxes you will need to handle. When it comes to estate taxes, there are two types:  

Federal Estate Taxes

The federal estate tax is a tax on property transfer at death. The estate tax return is used to report the decedent’s estate value and calculate the amount of tax owed.

State Estate Taxes

Some states have their own estate taxes separate from the federal estate tax. The state estate tax is generally based on the value of the decedent’s property rather than on the inherited amount of money. 

What Happens If An Estate Tax Return Is Not Filed?

If an estate tax return is not filed, the IRS may impose penalties and interest. Additionally, the estate’s executor may be held liable for any taxes owed. This can be a stressful and costly situation, so it’s important to ensure that your estate tax return is filed on time and accurately. 

The Importance of Estate Tax Returns

Estate planning is important for anyone with assets or loved ones they want to protect. Estate planning can help you:

  • Decide how your property will be managed and distributed after your death
  • Minimize the amount of taxes and other expenses that may be incurred after your death
  • Make health care and end-of-life decisions
  • Support a favorite charity or cause

Estate planning doesn’t have to be complicated or expensive. A basic estate plan can be created with just a few simple documents, including a will, Durable Power of Attorney, and Advance Directive (also known as a Living Will). Tax Services can help you with this. 

Tips for Filing an Estate Tax Return

Knowing how to file an estate tax return properly is very important. Here are some tips to help you file your Estate Tax Return:

Gather all necessary documents: To file your return, you will need to gather all of the necessary documentation. This can include bank statements, investment records, property records, etc.

Work with an experienced tax and accounting profesisonal: Filing an Estate Tax Return can be complex, so it’s important to work with an experienced accountant who can help you through the process.

File on time: Be sure to file your return on time to avoid penalties. If you need more time, you can file for an extension.

Pay any taxes owed: If your estate owes taxes, be sure to pay them on time to avoid penalties. 

Form 706 vs. 1041

Both trusts and estates file Form 1041. That isn’t to be confused with the estate tax return, which is Form 706. IRS Form 1041 is used for estate administration to keep track of an estate’s income after the owner has died and before the beneficiaries get their assigned assets.

The estate tax return, Form706, is filed by the executor of an estate to report the decedent’s assets and liabilities and calculate any taxes owed. The IRS requires that this form be filed if the decedent’s gross estate is valued at more than $12.06 million (as of 2022).

Estate Taxes vs. Inheritance Taxes

It’s important to distinguish between estate taxes and inheritance taxes. The government levies estate taxes on the value of your property at death, while the state levies inheritance taxes on the amount of money you inherit from someone who has died. In most states, inheritance taxes have been abolished but a few states still have them.

Connecticut Estate Tax Exemption

Along with other twelve states and the Columbia district, Connecticut imposes on its residents an estate tax. For 2022, the Connecticut estate tax exemption is $9.1 million. This means that any estate worth less than $9.1 million will not be subject to the estate tax in Connecticut. The estate tax is payable within six months of the deceased’s death, but a six-month extension may be requested.

Connecticut Inheritance and Gift Tax

Although the inheritance tax was abolished in Connecticut in 2011, there is still a tax on gifts. The gift tax is a federal tax that is imposed on the transfer of property from one person to another. The gift tax applies to both tangible and intangible property, such as money, stocks, or real estate. The gift tax exemption is currently 12.06 million (As of 2022). 

Who Must File Form CT-1041? 

If you are the trustee of a trust or the executor of an estate, you may need to file Form CT- 1041, Connecticut Estate and Trust Tax Return

The return is filed if:

  • The decedent was a resident or nonresident of Connecticut when they died, and The decedent’s estate includes taxable property located in Connecticut at the time of death.
  • Or the decedent’s estate has income from Connecticut sources that is taxable for federal purposes but not for Connecticut purposes.

When to File Form CT-1041

If you use the IRS’s simplified method, your tax return is usually due on or before April 15th. If your return is submitted after a Saturday, Sunday, or legal holiday and by the next business day (Monday in most states), it will be a timely filing.

In 2022, the due date for Connecticut Income Tax Returns for Trusts and Estates is a Friday. In the District of Columbia, that same Friday is a legal holiday. If you submit your return on or before Monday, April 18th, 2022, it will be considered on time if you do so by April 18th.

Estate and Trust Tax Extensions

If you cannot file your Connecticut estate or trust tax return by the due date, you can request an automatic extension of time to file using Form CT-8736. The form must be filed no later than the original due date of your return.

An extension will give you additional time to file your return, but it will not extend the time you have to pay any due taxes.

You must make a good faith estimate of any tax liability on Form CT-8736 and pay any amount that is due with the form. Interest and penalties may apply if you do not pay at least 90% of the tax owed.

Hire Estate And Trust Tax Professionals

If you’ve been named in a will or estate, you’ll need to hire Estate & Trust Tax Services. At Nesso Tax, we can help you out with everything you need. We will file the Estate Tax Return, which covers debts, assets, liabilities, and any taxes owed by the deceased person’s estate. 

Our team of professionals will also do some Estate Planning to minimize what’s owed in taxes and make sure assets are distributed fairly among all parties involved. Our experts at Nesso Group will work hard to ensure all your needs are met. Don’t hesitate to reach out to get started on your estate planning as soon as possible. 

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