How to File NC Form D-403 for Estates and Trusts

North Carolina’s Form D-407, the Income Tax Return for Estates and Trusts, is the designated document for estates and trusts to report their annual income, deductions, and tax liability to the state. Its primary function is to ensure that income retained by the fiduciary, which has not been distributed to beneficiaries, is properly taxed according to state law. This return operates in conjunction with the federal income tax return for estates and trusts, using the federal figures as a starting point for calculating the tax obligation to North Carolina.

Determining the Filing Requirement for Form D-407

A fiduciary must file Form D-407 if the estate or trust is required to file a federal income tax return, Form 1041, and it meets North Carolina-specific conditions. These conditions include the estate or trust deriving any income from sources within North Carolina or having a beneficiary who is a resident of the state. The residency of the fiduciary, the decedent, or the grantor can establish the residency of the estate or trust.

The deadline for filing Form D-407 aligns with federal due dates. For calendar-year filers, the return must be submitted by April 15th. For those operating on a fiscal year, the due date is the 15th day of the fourth month after the close of that fiscal year. If more time is needed, North Carolina grants an automatic extension if a federal extension has been approved; otherwise, Form D-410P, Application for Extension for Filing, must be filed by the original due date. An extension to file is not an extension to pay any tax owed.

Information and Documents Needed to Complete Form D-407

Before beginning the preparation of Form D-407, a fiduciary must gather several pieces of information and documentation. The official, current-year Form D-407 and its detailed instructions should be downloaded directly from the North Carolina Department of Revenue’s website.

A completed federal Form 1041, U.S. Income Tax Return for Estates and Trusts, is required. The fiduciary will also need the estate’s or trust’s federal Employer Identification Number (EIN). The name, address, and contact information for the fiduciary responsible for filing must be clearly stated on the return.

The fiduciary must also gather:

• Detailed statements of all income received, such as interest, dividends, rental income, and any capital gains or losses from the sale of assets.
• Itemized records for all deductible expenses, with records for fiduciary fees, professional services like attorney and accounting fees, and other administrative costs.
• Information for each beneficiary, including their full name, address, and Social Security number, for reporting distributions.
• Records of any North Carolina estimated income tax payments made throughout the year, as these will be credited against the total tax liability.

Calculating North Carolina Fiduciary Tax

The calculation of North Carolina’s fiduciary tax begins with the federal taxable income figure from Form 1041. This amount is then adjusted based on specific state provisions, which are categorized as additions and deductions. If there are any state-specific additions or deductions, the fiduciary must complete and attach Form NC-PE to the Form D-407.

Common additions to federal taxable income include any state or local income taxes that were deducted on the federal return and interest received from the bonds of other states or their political subdivisions. Conversely, certain deductions are allowed to reduce the taxable income. An example is interest received from U.S. government obligations, which is taxable on the federal return but exempt from state income tax.

After all required additions and deductions are made, the result is the North Carolina taxable income for the estate or trust. The state’s income tax rate, which is 4.50% for the 2024 tax year, is then applied to this amount to determine the gross tax liability. From this gross tax, certain tax credits may be subtracted.

Filing the Return and Making Payments

Once Form D-407 is completed, the final step is to file the return and remit any payment due. The North Carolina Department of Revenue encourages electronic filing for faster processing and confirmation of receipt. Fiduciaries or their tax preparers can use approved tax software or the state’s online portal to submit the return electronically.

For fiduciaries who prefer to file a paper return, the mailing address is provided on the current year’s Form D-407. Filers should obtain the latest version of the form from the North Carolina Department of Revenue’s website. It is advisable to use a mailing service that provides proof of delivery.

If there is a tax liability, payment must be made by the original due date to avoid penalties and interest. For mailed returns, a check or money order payable to the N.C. Department of Revenue can be included. For electronically filed returns or for those who wish to pay separately, the department’s website provides options for making secure online payments. The fiduciary should retain a complete copy of the filing for the estate or trust’s records.