Deductions on Form 1041

The IRS recently issued Notice 2018-61, which discusses deductions for trusts and estates filing Form 1041.

In the notice, the IRS indicates that trusts and estates will continue to be able to deduct fees paid in connection with the administration of the trust or estate on Form 1041 for the 2018 tax year and beyond.  Therefore, deductions for expenses that were previously not subject to the 2% limitation will continue to be deductible.  Examples include accounting fees, attorney fees and fiduciary fees.

The notice responds to questions that arose about such deductions in light of the new tax law’s temporary suspension of miscellaneous itemized deductions for individuals, which is effective for the 2018 through 2025 tax years.

Even though trusts and estates will continue to be able to deduct fees that were not subject to the 2% limit in the past, beginning in the 2018 tax year, trusts and estates will no longer receive deductions on Form 1041 for expenses that used to be subject to the 2% limitation (i.e., 2% of the trust’s or estate’s adjusted gross income).  Such expenses will be suspended for trusts and estates for the 2018 through 2025 tax years, as is the case for individual taxpayers.  The most common example of such an expense is investment advisory fees.

The notice indicates that the Treasury Department will issue regulations in the future that clarify and provide examples of these rules.