There are two things in life that are inevitable: Death and paying taxes. Unfortunately, when it comes to Uncle Sam, he gets the last word. Depending on your loved one’s income, the Internal Revenue Service (IRS) may require a final accounting of a deceased person’s estate, so it’s up to the executor or surviving family members to make sure a final tax return is filed. Here is some information you should know about as you gather the necessary paperwork to file federal taxes.
Is a Tax Return Required?
A tax return is not required if your loved one receives less than $20,000 (married filing jointly). However, the minimum amounts change each year, so it’s best to contact the IRS and your state’s taxing authority for the current figure. This gross income typically includes money, property and goods that the deceased person received from:
- Retirement plans
- Disability payments
For individuals with larger incomes, part of their Social Security benefits may also be counted at taxable income. Gross income also includes money from self-employment. Check with a tax attorney or accountant to decide if a tax return needs to be filed.
If you know your loved one has a return coming, then it would behoove you to file a return. If tax was withheld from your loved one’s pension, pension salary or annuity, a refund may be due. Complete and file with the final return a copy of Form 1310, which is the “Statement of Person Claiming Refund Due a Deceased Taxpayer.” Although the IRS says you don’t need to file this form if you are a widow or widower filing a joint return, you probably should anyway to head off possible delays.
When gathering information and paperwork, remember that the deceased person may have to pay three different types of taxes depending on his or her estate:
- Estate tax: Value of net assets owned at the time of death
- Personal income tax: Income received over the last calendar year before the death occurred
- Estate income tax: Tax on the income after a loved one’s death (interest, dividends, gains from the sale of real estate or stock
Who Should File the Final Tax Return for the Deceased
If the deceased person were married, the surviving spouse should file a joint tax return for the year of death and claim the full standard deduction and personal exemptions at the joint-return rates. Usually, the executor files the return, but the widow or widower can file it if no one else were appointed.
If an administrator or executor is appointed, he or she must sign the return for the deceased person. When a joint return is filed, the widow or widower must also sign. However, when there isn’t an executor or administrator, whoever is responsible should sign the return and note that he or she is signing “on behalf of the deceased person.”
If the surviving spouse files a joint return alone, he or she should sign the return and then write “filing as surviving spouse” in the deceased person’s place. The date of death needs to be written across the top of the return.
Special Rules for Widows and Widowers
There are some special rules that are in place for surviving spouses when it comes to filing a final return. For instance, for the year of the deceased person’s death, the surviving spouse may file a joint tax return. However, if he or she remarries during that calendar year, a “married filing separately” tax return for the deceased person must be filed.
For two years following a deceased person’s death, a surviving spouse who has at least one dependent child can get an income break. If you qualify for a the special filing status called “qualifying widow(er),” you can pay the tax rate that currently applies to married couples. You may have a smaller tax bill.
Special Considerations for Final Tax Returns
Typically, the same rules about deductions, income and credits apply to a deceased person’s final tax return as it would for a person who is still living. Some tips to keep in mind are:
- Personal exemptions can be claimed in full unless another person claimed your loved one as a dependent
- Full standard deductions can be claimed if they are not itemized
- Full credits for senior citizens or the disabled can be taken if your loved one were 65 or older or were retired by the end of previous tax year and was on permanent and total disability
- Qualifying medical expenses can be claimed as deductions on the final return or on a federal estate tax return.
Can’t Fool Uncle Sam
Don’t think you can get away from not filing a final tax return if you are required to. When the Social Security Administration is notified of a person’s death, which is usually taken care of by the funeral home, the IRS is automatically notified as well. If you need additional information about filing a final tax return, contact a Grace Specialist for additional information.