Form 1041-QFT Checklist for Tax Year 2020
Overview
Form 1041-QFT is the income tax return for Qualified Funeral Trusts during tax year 2020. The form reflects the Tax Cuts and Jobs Act provisions, which include four tax brackets at 10%, 24%, 35%, and 37%, as well as the suspension of miscellaneous itemized deductions subject to the two percent floor for tax years 2018 through 2025.
QFTs face Net Investment Income Tax under Section 1411 at 3.8 percent on undistributed net investment income exceeding thresholds. This tax was enacted under the Affordable Care Act in 2010, effective for tax years beginning after December 31, 2012. QFTs cannot claim personal exemptions under Section 685 and must use calendar year accounting periods.
Filing Deadline and Extensions
File by April 15, 2021, for the calendar year 2020. When the due date falls on a weekend or legal holiday, file by the next business day. Short tax year trusts file by the fifteenth day of the fourth month following the close of the brief year. Request automatic six-month extensions using Form 7004. Extensions apply only to filing time, not payment deadlines.
Eligibility Requirements
A trust qualifies as a QFT when it meets six requirements under Section 685: domestic trust arising from a contract with a funeral or burial service provider, sole purpose of holding funds for funeral or burial services, only individuals receiving services upon death as beneficiaries, only contributions by or for beneficiaries, trustee made the QFT election, and trust would have been grantor-owned absent the election with a sixty-day grace period following an individual’s death.
Multiple beneficiaries result in each separate interest being treated as an individual QFT for tax purposes.
Employer Identification Number
Apply for an EIN using Form SS-4 online, by mail, or by fax. Write “Applied for” on line 2 if your EIN has not arrived by the filing deadline. Composite returns require a separate EIN exclusively for that filing.
This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
Income Reporting
Interest:
Report taxable interest on line 1a. Report tax-exempt interest on line 1b without including it in total income.
Dividends:
Report ordinary dividends on line 2a. Report qualified dividends from domestic corporations or qualified foreign corporations on line 2b, excluding dividends from tax-exempt entities under Section 501 or 521, Section 591 amounts, and Section 404(k) dividends.
Capital Gains:
Report net capital gain or loss on line 3. Attach Schedule D (Form 1041). Complete Part V when net capital gain and taxable income exist, or qualified dividends and taxable income exist. Enter tax from Schedule D line 45 on line 13. For composite returns, separately identify capital gain components for each QFT.
Other Income:
Report other income on line 4. Attach a statement listing multiple items.
Total Income:
Line 5 combines lines 1a, 2a, 3, and 4.
Deductions
Tax-Exempt Income Allocation:
No deduction is allowed for expenses allotted to tax-exempt income, except state income taxes and business expenses allotted to tax-exempt interest. Allocate indirect expenses proportionally.
Line 6:
Taxes paid by the trust.
Line 7:
Trustee fees.
Line 8:
Attorney, accountant, and return preparer fees.
Line 9:
Other deductions are not subject to the two percent floor. These are costs that would not exist in the absence of the trust. Attach a statement listing multiple items.
Miscellaneous Deductions:
For 2018 through 2025, miscellaneous itemized deductions subject to the two percent floor are suspended.
Personal Exemption:
QFTs cannot be eligible to claim personal exemptions.
Line 10:
Total deductions (sum of lines 6 through 9).
Line 11:
Taxable income (line 5 minus line 10).
This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
Tax Calculation
Apply the 2020 tax rate schedule unless Schedule D applies:
- $0 to $2,600: 10%
- $2,601 to $9,450: $260 plus 24% of excess over $2,600
- $9,451 to $12,950: $1,868 plus 35% of excess over $9,450
- Over $12,950: $3,075.50 plus 37% of excess over $12,950
Enter tax on line 13. If Schedule D Part V applies, enter tax from Schedule D line 45 instead. For composite returns, calculate tax separately for each QFT and enter the total with the composite box checked.
Credits and Net Investment Income Tax
Line 14:
Specify the credits claimed and attach the required forms. Attach a statement listing multiple credits.
Line 15:
Line 13 minus line 14.
Line 16:
Complete Form 8960 to calculate NIIT at 3.8 percent on the lesser of undistributed net investment income or excess AGI over the threshold. For composite returns, calculate NIIT separately for each beneficiary’s interest. Enter NIIT from Form 8960 line 21 on line 16.
Line 17:
Total tax (line 15 plus line 16). Include additional taxes if applicable.
Payments and Balance
Line 18:
Report estimated tax payments, extension payments, federal withholding, and credit for undistributed capital gains. Attach Copy B of Form 2439 if you claim the undistributed capital gains credit. Enter interest or penalties separately in the bottom margin.
Line 19:
Tax due if line 18 is less than line 17. Make checks payable to “United States Treasury” with the EIN and “2020 Form 1041-QFT” noted. Enclose but do not attach the payment.
Line 20:
Overpayment if line 18 exceeds line 17.
Line 21:
Allocate overpayment to 2021 estimated tax (line 21a) or refund (line 21b).
Required Attachments
Attach Schedule D (Form 1041) for capital gains or losses. Attach Form 8960 when NIIT applies. For composite returns, attach a statement showing, for each QFT, the beneficiary or owner's name, income types and amounts with capital gain components separated, deductions and credits, tax and payments, and the termination date, if applicable. Attach statements itemizing multiple other income items, multiple line 9 deductions, or multiple credits. Attach Copy B of Form 2439 for undistributed capital gains credits.
Signature and Filing
The trustee or authorized representative must sign. Paid preparers must complete the Paid Preparer Use Only section, sign, enter their PTIN issued after September 27, 2010, and provide firm information. Check “Yes” or “No” to authorize IRS discussion with the preparer.
Authorization applies only to the individual preparer, expires on the 2021 filing due date, and does not permit receiving refunds or binding the QFT to additional liability.
Verify the current filing address on the IRS Where to File page before mailing. Designated private delivery services also satisfy timely filing requirements, but cannot deliver to post office boxes.
Estimated Tax
QFTs expecting to owe at least $1,000 for 2021 must pay estimated tax. Calculate for individual QFTs, not composite returns as a whole. Use Form 1041-ES. Calculate underpayment penalties using Form 2210 if applicable.
10-Step Filing Process
Step 1: Verify Qualification
Confirm the trust meets all six QFT requirements. Document the election status. Indicate the appropriate box on line 5 for initial, amended, or final return.
Step 2: Obtain EIN
Apply using Form SS-4 if needed. For composite returns, obtain a separate EIN. Enter the trust name, EIN, trustee information, address, and number of QFTs.
Step 3: Gather Documentation
Collect Forms 1099-INT, 1099-DIV, 1099-B, Form 2439 if applicable, and other income documents. Distinguish tax-exempt from taxable interest. Verify qualified dividend eligibility.
Step 4: Document Expenses
Collect invoices for taxes, trustee fees, professional fees, and other deductions. Prepare allocation for tax-exempt interest expenses. Identify the costs that would not exist in the absence of the trust.
Step 5: Complete Schedule D
Prepare Schedule D (Form 1041) for capital transactions. Separately identify gain types. Transfer net amount to line 3. Complete Part V if preferential rates apply.
Step 6: Report Income
Report interest on lines 1a and 1b, dividends on lines 2a and 2b, capital gains on line 3, and other income on line 4. Calculate total income on line 5. Report deductions on lines 6 through 9—total deductions on line 10. Calculate taxable income on line 11.
Step 7: Calculate Tax
Apply the 2020 rate schedule on line 13, unless Schedule D Part V applies. For composite returns, calculate separately for each QFT and the total.
Step 8: Calculate NIIT
Complete Form 8960 if applicable. For composite returns, calculate separately for each beneficiary’s interest. Transfer to line 16. Specify credits on line 14. Calculate line 15 and total tax on line 17.
Step 9: Report Payments
Report all payments on line 18. Calculate tax due on line 19 or overpayment on line 20. Allocate overpayment on line 21.
Step 10: File Return
For composite returns, attach the required statement with details for each QFT. Sign and date. Ensure paid preparer compliance. Enclose payment if due. Verify the filing address on the IRS Where to File page. File by April 15, 2021, or submit Form 7004 for an extension.
This checklist accurately guides the preparation of one Form 1041-QFT return for tax year 2020, ensuring compliance with IRS requirements and correctly applying deductions within statutory limitations.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
