Discussion:SE tax in an estate?
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Discussion Forum Index --> Tax Questions --> SE tax in an estate?
| 14 March 2009 | |
| I have a client who was a Schedule C taxpayer. He died last year and is leaving his business to his brother. The probate has not yet been completed and therefore ownership hasn't officially passed to the brother. When preparing the estate 1041 for 2008, I see where the Schedule C income would be reported on page 1 as well as on the K-1, however, it looks like the Schedule C income is not subject to SE tax by either the estate or the beneficiary (K-1 instructions indicate the business income is reported on Schedule E of 1040). Am I missing something here? | |
| 14 March 2009 | |
| Bejeter, a situation like this scares the bejeters out of me! This is my take.
I never thought of being able to pass a Scd. C business as a business. All the business represents personal assets of the deceased, so it's technically not passed as a business, but as these various separate assets. The bene. is not subject to SE tax unless he is owns and operates the sole prop. So, there could be income after death generated by this grouping of property (including A/R etc.), but the beneficiary is really the beneficiary of these various items of property, and not the business itself. Once he amasses them in his under his ownership and begins running it, he will pay SE tax when he files his Scd C for the same da*n business (i.e. it's ok to keep the name and everything, just update the trade name filing at the courthouse, update business license with county/city etc). Interesting question, this is my stab at it. | |
| 14 March 2009 | |
| Bryan, you are correct
unless the beneficiary is running the business | |
| 14 March 2009 | |
| It's strange that I have never had to deal with this question in practice, and I think it's because most sole proprietorships never make it to the point where they are passed on, or are worth passing on. So, the deceased did a goog job running his business. | |
| 14 March 2009 | |
| or maybe most beneficiaries take over the business without worrying about the 1041? | |
| 14 March 2009 | |
| The income prior to dod must be reported on the final 1040 and that is subject to FICA.
Consider that there were 2 short years: 1. prior to dod 2. after dod which goes on a 1041 Was the brother an employee working for the sched c and receiving a W-2? | |
| 14 March 2009 | |
| Based on what I've read and seen, I think CrowJD is correct on this one. It just seems really strange that the income isn't subject to SE while in an estate. | |
| 14 March 2009 | |
| Bjeter, what would the Social Security Administration do with the payments once it got them from the IRS? I mean, estates don't draw social security, nor do they check themselves into the hospital on Medicare.
By the way, I've heard of situations where companies are just left on a 1041. Now...this is not proper, but it has been done. And, if you know anything about the 1041, you know it had the reputation of being one return that got lost once it got to the IRS. I don't know if they have people looking at them today or not. This "company" really dissolves at death, so I would think that services by the brother during the interim would be the services of an IC. If the brother is the executor, he could just take his executors fee, and that would be it. However, if he's not the executor, but is essentially hired by the executor, then should the estate 1099 him for his services in managing this certain property until it's passed to him? That would ultimately give you your SE tax, and the universe would rebalance itself. As you can tell, I'm blathering outloud. | |
