This entry is the tenth and final in a series of articles focused on common life events that can have a significant tax impact on your federal income tax return when filed with the Internal Revenue Service (IRS). This entry specifically covers death. For further reading on the impact that a death can have on your federal income tax, see the IRS’s publication on death.
Upon your death, your death triggers the creation of an estate. An estate is all of the property you owned at the time of your death. For tax purposes, during the tax year when your death occurs, there are now two tax returns that someone must file: one for you and one for your estate. This “someone” will be referred to as a personal representative. Your personal representative may be a family member or someone else appointed to handle this responsibility.
Your personal representative is responsible for obtaining an employer identification number (EIN) for your estate, filing an income tax return related to you and your estate, and paying the tax owed by the due date for both you and your estate. As with a federal income tax return when you are alive, if the tax returns related to you or your estate are not filed on time or the taxes owed are not paid on time, the IRS will assess a penalty and interest as with any other late return or unpaid tax liability.
For the decedent’s individual return, many aspects of your return should be completed by your personal representative as though you were still alive. The personal representative will need to indicate on the return that the taxpayer is deceased and will sign the return on the deceased’s behalf. The income included on the return will be the income earned by the deceased from the start of the tax year until the date of the deceased’s death, which effectively serves as the end of the tax year. Likewise, exemptions and deductions should include either the standard deduction or itemized deductions, whichever is in the best interest of the taxpayer.
If the decedent had a surviving spouse, the surviving spouse can still file a joint tax return in the tax year of their spouse’s death. In addition, the surviving spouse may be eligible for more favorable tax rates for the two tax years after the tax year of their spouse’s death.
For your estate, any income earned by the estate from the time of the decedent’s death until the assets in the estate are distributed to the appropriate beneficiaries is taxable. The determination as to what constitutes income for an estate and how it is reported on the tax return of the estate is much as is done with a personal income tax return.
If you have been appointed as the personal representative for an estate and you are unsure as to what you need to do, or if a loved one has passed away recently and you are unsure of how to handle the tax return, you can contact a tax attorney to obtain the help you need.
- Federal income tax significant events, Part 9 – Bankruptcy (taxlawhome.com)
- Federal income tax significant events, Part 8 – Moving (taxlawhome.com)
- Federal income tax significant events, Part 7 – Purchasing a Home (taxlawhome.com)
- Federal income tax significant events – Disasters and Theft (taxlawhome.com)
- Federal income tax significant events, Part 5 – Disabilities (taxlawhome.com)
Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.