Filing Taxes For A Loved One That’s Passed Away

If a family member of someone close to you passes away, one of the last things on your mind is filing taxes on their behalf. Although, when someone passes away it is still necessary that their tax return be filed in the year that they passed away, as well as years prior that they might not have filed a return. Gurian CPA has provided some tips on filing a tax return on behalf of someone that has passed away before being able to file their taxes.

If you’re unsure whether you need to file a tax return on behalf of your loved one or if you should file to receive a refund, Click Here.

If you’ve found that it is necessary to file a tax return for the deceased, follow the below steps:

Gather the Necessary Information

1. Collect the loved one’s income reporting forms: This would include W-2s, 1099s and interest statements. These forms are usually sent after January 31^st for the previous year and should arrive by the end of February. If you are unable to locate all the above forms, you can send an information request to the IRS. In order to submit the information request you will need to make sure you have the below information and documentation.
   • Your loved one’s complete name, address and social security number.
   • Copy of the death certificate
   • Form 56, which notifies the IRS that the surviving spouse or executor has taken over the decedent’s affairs. Or, a copy of a letter from the court that grants the personal representative of the deceased the authority to manage his or her affairs, called the Letters Testamentary.
2. Decide whether to file a joint return: If a joint return is supposed to be filed, then the surviving spouse will sign the tax return and state that they are the surviving spouse. If they were to file as a single filer, then the representative of their estate will file the tax return on their behalf.
3. Change the ownership of all accounts: This includes bank accounts and mutual funds. It’s important to make sure that you change the ownership of to your name as quickly as possible so that the correct amount of income is reported on the 1099 income report. If you wait to do this, interest and other income earned after the date of death will be counted and will show more income than it should. If you are unable to change the ownership of the accounts quickly, you can report the entire amount on Schedule B of the return and deduct the amount that should be reported separately.

Filing Taxes for Your Loved One

1. Calculate your loved one’s reportable income: You loved one’s reportable income is the income earned before the 1^st of the year until the day your loved one’s death was reported. Any income earned after they have passed away is considered estate’s income. If the estate’s income exceeds $600, you will need to file Form 1041, Income Tax Return Estates and Trusts.
2. Fill our Form 1040: When filling out the tax return you would fill it out exactly how they would have themselves. You are still able to claim any deductions and credits that would have been owed to them. The one that is responsible for filing the tax return on the behalf of the individual that has passed away is in return responsible for paying any tax that is due, but it also able to receive claim a refund. If they were eligible for a refund you would simply file a Form 1310.
3. Write the word “DECEASED” across the top of Form 1040: When filing a tax return for the loved one that has passed away, you must indicate that they have passed away by writing “DESEASED” on the return, along with their name and the date they passed away.

Filing for an Estate

Smaller estates generally don’t have to file estate tax returns. If the estate of the deceased exceeds $11.18 million then it is subject to taxation. The one responsible for filing the individual tax return is not only responsible for that but filing for the estate as well by using the IRS Form 706.  The individual tax return could be affected by tax law changes, including a larger standard deduction, end of personal exemptions and changing the filing tax bracket. The estate tax must be filed within 9 months of the loved one’s death.

In order to file estate taxes for the decedent, follow these steps:

1. Collect Information needed to file estate taxes:
   • Obtain a tax ID number for the estate, also known as the “employer identification number”, or EIN. Click Here to apply for the tax ID number online.
   • Calculate the annual income that was earned from the decedent’s assets. These assets can include savings accounts, CDs, bonds, stocks rental property and any other income accrued after the individual’s death.
2. Fill out Form 1041 to file estate taxes: This form must be filled out by April 15^th of the year following the loved one’s death.
   • A decedent’s estate gross income is figured the same way individual income is calculated. Although, a decedent’s estate us allowed an income distribution deduction for distributions to beneficiaries. For example, if a 401K plan has a designated beneficiary this would be reported on Schedules K-1 on From 1041.
   • If you need more time to file the estate taxes, you can apply for an extension up to five months by submitting  Form 7004 to the IRS.
3. Transfer assets from the decedent to the beneficiary: Use Form 706 to complete the transfer of assets.
4. Before selling the property, apply for a Certificate of Discharge: It’s necessary to request a Certificate of Discharge from a Federal Tax Lien before selling the decedent’s house or property. This will release the property from the automatic federal tax lien that is tied to the person’s estate the day that they passed away. The lien has to be removed before the property can be sold. In order to apply for the Certificate of Discharge make sure you have the following:
   • The inventory and appraisement of the estate assets
   • Copy of the will
   • Copies of documents related to the sale of property

By: Paige Knight