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REG CPA Practice Questions: Income Reported in the Year of Death for a Decedent
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May 3, 2024
In this video, we walk through 5 REG CPA exam practice questions on how to calculate the income reported in the year of death for a decedent. Important Links Link to the free study training webinar mentioned in the video: https://www.superfastcpa.com/strategic-study See the full post for this video: https://www.superfastcpa.com/reg-cpa-practice-questions-explained-calculate-the-income-reported-in-the-year-of-death-for-a-decedent/ See the other REG walkthrough videos here: https://www.superfastcpa.com/free-reg-cpa-practice-question-walkthroughs/ 00:00 Intro 00:53 Question 1: Learning the Basics of a 1040 for a Decedent 04:24 Question 2: Calculating the income reported in the year of death 05:46 Question 3: Remembering How IRD is Treated 07:36 Pillar Topics
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Welcome to another reg walkthrough video
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I'm Logan, and in today's video, we're going to be going over how to calculate the income
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reported in the year of death for a decedent. But we're going to be doing it the Superfast CPA way, which is diving straight into questions
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to learn the material. If you don't know much about our strategies, be sure to go to superfastcpa.com to watch our free
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one-hour webinar training where we go over the six key ingredients to passing the CPA exam
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Again, it's only one hour long, it's free, and it will save you months and months of struggling
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with your CPA exam process. Also, if you like the idea of going through questions as your main
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learning material, be sure to check out our Super Fast CPA app where we have five question mini quizzes
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that you can access easily on your phone throughout the day. In this video, we'll only be doing
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three questions instead of the normal five because this topic is pretty straightforward
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and we felt like you could learn what you need to know in just three questions. That said
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let's go straight to those questions to learn about this. Here's the first question. Ethan Ross, a single filer, passed away on September 15th year one
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Before his death, he had earned $30,000 in wages and $5,000 in stock dividends
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His estate received $2,000 in mutual fund distributions and $3,000 in rental income after
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his death within the same year. The rental income was attributed to the period after Ethan's death
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Additionally, a consulting client paid a $4,000 invoice in year two for services Ethan provided
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in year one. What total income should be reported on Ethan's final form 1040 for year one
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one. So if you don't know much about this, again, this is basically figuring out what income is put
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onto the final 1040 of somebody who had passed away. Let's dive straight into the answers to start
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learning about this. All right. $35,000. Ethan's final form 1040 should report the income he actually
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received up to the date of his death, which consists of the $30,000 in wages and $5,000 in stock
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dividends, totaling $35,000. The mutual fund, distribution, and rental income received after his death are not
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reported on Ethan's final form 1040, as these amounts are considered IRD and are attributable
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to the estate, and we'll learn more about what IRD is in the next paragraph. They should be
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reported on the estate's income tax return for year one, not on Ethan's final individual tax return
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The $4,000 consulting fee paid in year two for services provided in year one is also IRD
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and should be reported on the estate form 1041 or the beneficiary tax return in year two since that is when it was received So let learn what IRD is IRD is income in respect of a decedent
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This is income that was earned by an individual before death, but was not received and included in their taxable income before they passed away
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This can include, but is not limited to, outstanding paychecks, bonuses, business income
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dividends, interest, and retirement account distributions. IRD maintains its character as taxable income when
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it is later received by the decedent's estate or beneficiaries. The individual or entity that receives the IRD must include it in their taxable income for the
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year it is received. IRD is significant because it ensures that the income which has not been previously taxed is
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subjected to taxation, preventing it from escaping the income tax system due to the taxpayer's death
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So basically, what you need to know about how to calculate what goes on to a decedent's 1040
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is if they earned it and received it before they died, then it's on their
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1040. If it was received after their death, then it's either taxed to the estate or the beneficiary
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who received it. Now, we won't be diving into estate tax or the tax for that beneficiary in this
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video, especially because estate tax has been moved to TCP instead of reg. So we won't be covering
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estate tax at all here. But it's quite simple. Whatever they earned and received before they died
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that's on their 1040. Whatever they didn't receive before they died can be IRD
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but it's still taxed to the estate or to the beneficiary who received the money
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In simple terms, a final 1040 is still just a normal 1040
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It's just cut a little bit short depending on when the decedent died. So it still needs to be filed by April 15th
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The spouse of the decedent, if they had a spouse, can still file a joint return
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The deductions that you can normally take as an individual can still be taken
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It's still a normal 1040. It's just that the amount of income that can be taken on that 1040
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is influenced by the date of the death of the decedent. That's pretty much it. So let's go over the
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next two questions just to make it sink in a little bit more, and that'll be it. Let's go to the next
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question. Here's the next question. Jamie Lynn, who filed taxes jointly with her spouse and had no
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dependents sadly passed away on July 4th year one Up until the date of her death Jamie had received a salary of for the year Following her passing her estate received in stock dividends in year one Additionally in year two her estate accrued in interest from savings
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For the tax return of year one, what amount should be reported as Jamie's total income
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All right, so we just barely went over this. Pretty much you should already know what you need to know here
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So pause the video, calculate the answer, and then when you're ready, come back and we'll look and see if you got the right answer
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All right, here's the answer. $45,000. Jamie's final individual tax return should only include the income she received up to the date of her death, which is the salary of $45,000
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The stock dividends of $8,000 are considered income in respect of a decedent since they were received after her death
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Therefore, they should be reported on the estate's income tax return for year one, not on Jamie's final personal income tax return
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The interest accrued in year two is irrelevant to year one's tax filing and will be handled by the estate in year two's tax return
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So again, really simple. Whatever Jamie actually earned and received herself, that's what goes on her income tax return
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Everything else that was received after her death goes to the estate or the beneficiary
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Let's go to the last question just to hammer at home one more time. All right, here's the final question
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Alexandra Beam, an unmarried taxpayer, died on September 3rd, year one. Alexander was a cash basis taxpayer and had two sources of income during year one
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She received $30,000 in consulting fees to her marketing services and $3,000 in royalties from
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a book she authored, all prior to her death. In addition, she had accrued $2,500 in corporate bond
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interest that was due to be paid in October year one, which she did not receive before her
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passing. Alexandra's estate received this interest payment posthumously in October year one
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What amount should be reported as taxable gross income on Alexander's final form
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1040 for year one? All right, this is the last question. Go ahead, pause the video
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see if you can figure out the answer. You probably should be able to, based on what we've already
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gone over, and when you're ready, come back, and we'll look at the answer. All right, here's the
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answer. $33,000. The income received from consulting, $30,000, and the royalties $3,000, before
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Alexandra's death are included in her final taxable gross income. The corporate bond interest
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accrued at the time of her death, but received by the estate afterwards, $2,500, should not be
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included in her final income tax return but rather on the estate income tax return IRD or income in respect to the decedent is basically anything that was owed to the taxpayer before death Anything earned by the estate after the
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date of death or anything owed but paid in the following year goes to the estate or beneficiary
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Or essentially, it's saying there, IRD is stuff that the taxpayer did earn, but since it wasn't received
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until after the taxpayer passed away, it is taxed to the estate or the beneficiary. And that's
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pretty much it. If you can understand that a decedent's 1040 is still a 1040, it's the same
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It's just affected by the date of the death of the decedent. That's pretty much what you need to
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understand. So to finish the video, let's go ahead and do one more part of the super fast CPA process
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which is called pillar topics. Now, pillar topics is essentially looking at what you just did
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looking at the questions you went over, and pulling out the things that were obviously important
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according to your review course that you should know for your CPA exam. So let's go ahead and just
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list a few. Final 1040s for a decedent are still just a normal 1040. The only difference
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is that it is cut off at the date of the death of a decedent. So, you still take all the money
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they earned and received, you still take the same deductions, and a spouse can still file
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jointly. Anything that is received after the date of death will be considered taxable to the estate or the
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beneficiary. And that's pretty much it. You don't need to know really too much more. It's a very
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simple and straightforward topic as far as the CPA exams go. So hopefully this short video could help
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you out. If you liked going through questions as your main learning material, be sure to check out
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our Super Fast CPA app where we have five question mini quizzes that you can do throughout the day
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to continually improve, and especially go to SuperfastCPA.com and check out our free one-hour
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webinar training where we go over the six key ingredients to passing the CPA exam. The link will be
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in the description, so make sure you go check that out and save yourself a ton of time struggling
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with these exams. If you liked this video, make sure to like it, leave a comment, and share
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with anybody you know who is going through the CPA exams. And with that said, thanks for watching
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I'll see you in the next video
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