skip to Main Content

Should Estate Administration Be Done By Fiscal Year or Calendar Year?

Fiscal Year vs Calendar Year: What’s Best for You? by Vincent Russo

** This article has been revised from its original version which was published on July 16, 2015

The fiduciary of an estate may use either the calendar year or the fiscal year as the “taxable year.”

Typically, most fiduciaries elect to use a fiscal year because it gives them more time to think about estate taxes during estate administration. A calendar year ends on December 31st, whereas the fiscal year begins on the day of the individual’s death and ends on the last day of the month before the one-year death anniversary. For example, if the decedent died on any day in March of 2022, their estate’s fiscal year would end on February 28th, 2023.

Any assets acquired by the estate during the fiscal year must be reported on a fiduciary income tax return. The personal representative or administrator of an estate should also make any estate distributions during that time.

An Example of How the Fiscal and Calendar Years Matter

Tom passed away on June 15, 2022. Tom’s rental properties, savings account, and stock will generate revenue for the estate. The personal representative of his estate will file a fiduciary income tax return at the end of his estate’s fiscal year, which is May 31, 2023.

Suppose Tom had beneficiaries of his estate, and distributions were made to them during that fiscal year. In that case, the income normally subject to estate taxes gets transferred to the beneficiaries instead. The assets and certain other expenses which occur during that time can be subtracted from the estate income.

A fiduciary should claim actual cash amounts on their tax return, not accrued funds. If a stock dividend is recorded on December 31, 2022, and the issuance date was January 3, that dividend would not be taxable in the year 2022; it would be taxable in 2023.

Talk to an Estate Planning Attorney

It is vital that a personal representative or administrator of an estate have a firm understanding of whether it makes sense to settle an estate in a custom fiscal year or the standard calendar year. Before deciding, they should talk to an accountant or estate planning attorney about the different tax ramifications. If the personal representative is able to wait several months to pay an expense to offset income that is projected for the following year, then it makes sense.

Note: Fiscal year elections are only available to estates. Trusts are generally required to be filed according to the calendar year.

Benefit from our estate administration experience, as well as caring and compassionate staff. Consult with the experienced estate planning lawyers at Russo Law Group, P.C., to discuss tax consequences using a fiscal or calendar year. We can help you make the best decisions to reduce your tax burden. Contact us or take advantage of our free seminars and webinars to learn more about how Russo Law Group, P.C., may assist you with estate administration.

Eric J. Einhart

Eric J. Einhart
Vincent J. Russo & Associates, P.C.
1600 Stewart Avenue, Suite 300
Westbury, NY 11590
800-680-1717

This Post Has 4 Comments

  1. Good morning – I know this article has been up for quite a while but I am wondering how the fiduciary make the fiscal year election? The IRS (when it assigned an Employer Identification number) indicated a Form 1041 would be due on April 15th, 2020 – i.e. a calendar year end. This is the first year for the estate with a decedent’s date of death in May 2019. Is simply filing a return indicating a fiscal year end of April 30, 2020 sufficient or is there an actual election form for the first tax filing? Thank you in advance for any response.

    1. Please accept our condolences for your loss.
      Thank you for your interest in our firm’s blog and for your inquiry.
      If you indicate the estate is running on a fiscal year on the initial return (in this case fiscal year would be the date of death to April 30, 2020) is sufficient to elect a fiscal year for the estate.

  2. Another question — if someone dies in 2019 with a 401K which is distributed to the estate in 2019 and passed on out to the beneficiaries in 2019, but the estate files a fiscal year return ending in 2020, do the beneficiaries pick up the income from the K-1 on their 2019 or 2020 income tax returns?

    1. Generally, when an estate runs on a fiscal year the K-1 will report the income in the year the return is filed. So I’m this case the distributable net income (the DNI) would be reported in 2020 and the K-1 stating the DNI would be issued to the Residuary beneficiaries in 2020 to be reported on their individual income tax in the 2020 tax year.
      If you’d like to discuss this in further detail, we’d be happy to arrange a call with one of our Estate Planning Attorneys.

Leave a Reply

Your email address will not be published. Required fields are marked *

Back To Top
Search