When dealing with the death of a loved one, the last thing you need is legal and tax work to handle for the deceased. However, if you are the personal representative, administrator, executor, or otherwise in charge of handling a deceased person’s estate, you have a responsibility to file their final income and estate tax returns.
If the deceased earned taxable income during the year of his or her death, then they may owe federal income taxes. This will require you to complete and file IRS Form 1040 on their behalf.
Likewise, if the decedent left behind a sizable estate or income-generating assets, his or her estate may owe federal estate taxes. In this case, IRS Form 1041 or 706 may need to be filed for the decedent’s estate.
Income Taxes
The deadline for filing the decedent’s final income tax return via Form 1040 is April 15th of the year immediately following the decedent’s death. If the decedent was married at the time of death, his or her spouse may choose to file a final joint tax return for the year in which the decedent died.
The IRS also offers a tax break to individuals whose spouses have passed away leaving them with at least one dependent. This tax break comes in the form of a short-term, special filing status called qualifying widow or widower.
This filing status will give the surviving spouse a higher standard deduction and a lower tax rate than filing as a single person. However, a surviving spouse will only qualify if they have not remarried, have a dependent child who has lived with them all year, and they have paid more than half the yearly maintenance cost for their home.
Note that the surviving spouse does not file as a qualifying widow or widower for the year in which his or her spouse actually passed away. Instead, the special filing status can be used for the next two years after.
For the year in which the decedent died, the surviving spouse can use the married filing jointly status, as long as he or she doesn’t remarry and the executor of the decedent’s estate approves the joint return.
Estate Taxes
In addition to the final income tax return that must be filed for the decedent, the estate may also have to file a fiduciary income tax return. This will depend on the size of the estate and whether or not there is income earned by the estate.
If the decedent’s estate is large enough (currently more than $11.4 million), IRS form 706 must be filed within 9 months of the decedent’s death, unless an extension has been requested. The form must be signed by the executor, the administrator, a surviving family member, or in the case of a joint return, the decedent’s surviving spouse.
What’s more, if the estate generated over $600 in taxable income in the year of the decedent’s death, IRS Form 1041 must be filed, typically by April 15th of the year immediately following the decedent’s death. However, if all of the income-generating assets held by the estate are exempt from probate, form 1041 does not have to be filed.
The estate taxes will either be paid by the decedent’s estate, or by the estate’s beneficiaries, to the extent that income was distributed to them. Furthermore, once the estate has been fully distributed, it will be necessary to file a final income tax return to close out the entity with the IRS and to sever the fiduciary relationship with the executor.
Consult With an Experienced Legal or Financial Professional
Filing a deceased loved one’s final tax returns can be complicated. If you need help with determining if your loved one’s estate owes any taxes, or if you are subject to any taxes as a result of inheriting from a loved one’s estate, consult with a knowledgeable legal or financial professional. An experienced professional can ensure that your loved one’s final tax returns are filed correctly, while you attend to your grief and how you will honor your loved one’s legacy.
To learn more about how to plan for your estate, contact an experienced estate planning attorney to arrange a free consultation. For help getting started with your estate plan, contact us or sign up below for one of our events.
