When the Only Two Things that are Certain in Life Finally Come Together: A Decedent’s Final Tax Return
March 31st, 2016 by Bunch & Brock
The first time a wage earner makes enough money to trigger the income tax filing requirement usually results in a fairly simple return. In contrast, a taxpayer’s final return filed after his or her death is quite complicated. When a taxpayer dies, a legal entity called an estate is automatically created to make sure that all of the decedent’s income is accounted for. A decedent’s surviving spouse or personal representative should promptly notify all payers of income about the death and, in turn, they should stop using the decedent’s social security number. Instead, the estate has to request its own employer identification number (EIN) to be used for filing purposes.
Income is taxed on the taxpayer’s final return, on the return of a beneficiary who has the right to receive the income, or on the estate’s income tax return. Only income earned from the beginning of the year to the date of the death should be reported on the decedent’s final return. In many cases, assets that list a beneficiary can bypass probate and be paid out directly, making the beneficiaries the ones responsible for reporting the income earned after the date of decedent’s death. An estate that receives $600 or more of income should claim it on its tax return. To navigate these financial and legal complexities effectively, consulting with a probate lawyer can provide invaluable guidance on how to properly manage and report the income of the decedent’s estate.
All deductible expenses paid before the taxpayer’s death can be written off on the final return. For those who may have been ill, it’s important to note that medical bills paid within one year after death may be treated as having been paid by the decedent at the time the expenses were incurred. The full standard deduction and the taxpayer’s personal exemption may be claimed on the final return, regardless of when during the calendar year the taxpayer died.
The decedent’s surviving spouse can file a joint return for the year of death using joint-return rates and claiming both personal exemptions and the full standard deduction. The surviving spouse can file as a qualifying widow or widower for the two years following a spouse’s death, providing he or she doesn’t remarry. In most instances, the joint return is actually filed by the executor of the estate, who signs the return for the decedent and should include a copy of the certificate showing the appointment. The surviving spouse also signs. If no executor or administrator has been appointed, the surviving spouse should file the joint return, sign it, and write “filing as surviving spouse” in the space for the other spouse’s signature. If there is no executor, administrator, or surviving spouse, whoever is in charge of filing the return should sign it and note that he or she is signing “on behalf of the decedent.” If the decedent does not owe taxes, but did have tax withheld, a copy of Form 1310 “Statement of Person Claiming Refund Due a Deceased Taxpayer” should be filed to avoid delays.
There are lots of nuances to filing income taxes correctly, even the last one. The Lexington bankruptcy attorneys at Bunch & Brock hope that you have found the information presented here to be helpful. If you wish to learn more about how our firm can be of assistance to you, or you want to learn more about this topic, we encourage you to contact us by calling 859-254-5522 or filling out this online form.