Understanding Filing Requirements for Deceased Taxpayers

• Final Tax Return:
  • The executor or personal representative must file the deceased’s final income tax return for the year of death.
  • The filing deadline is the same as a living taxpayer’s: April 15 of the following year (unless extensions apply).
  • Ensure all income earned up to the date of death is reported.
• Step-by-Step Process for Filing the Final Return:
  1. Gather all tax documents, including W-2s, 1099s, and other records of income.
  2. Review deductions and credits available for the taxpayer. For example, medical expenses paid within a year of death may qualify for deductions.
  3. Complete IRS Form 1040 or 1040-SR, clearly marking it as “Deceased” and noting the date of death.
  4. Attach a copy of the death certificate, if required.
  5. Submit the return electronically or by mail by the deadline.
• Requesting an Extension:
  • If more time is needed to file, use IRS Form 4868 to request an automatic six-month extension.
  • Note that this extension applies only to filing, not to payment of any taxes owed, which are still due by April 15.

Estate Taxes: What You Need to Know

• Federal Estate Tax Threshold:
  • For 2024, the exemption is $12.92 million per individual.
  • Estates exceeding this threshold must file Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return.
• Steps to Determine Estate Tax Liability:
  1. Calculate the gross estate value, including real estate, investments, personal property, and retirement accounts.
  2. Subtract allowable deductions, such as funeral expenses, debts, and charitable contributions.
  3. Apply the federal estate tax exemption to determine if taxes are owed.
• Portability of Exemptions:
  • Surviving spouses may claim any unused portion of the deceased spouse’s exemption.
  • File Form 706 within nine months of death to secure this benefit.
• State Estate Taxes:
  • Some states impose their own estate or inheritance taxes with lower exemption thresholds.
  • Research specific state laws and prepare applicable forms accordingly.

Executor Duties: Tax Responsibilities at a Glance

1. Obtaining an EIN:
   • Apply for an Employer Identification Number (EIN) for the estate using IRS Form SS-4. This number is required to file estate tax returns and manage financial accounts.
2. Filing Form 1041:
   • If the estate earns income after the date of death (e.g., from rental properties or investments), file Form 1041 to report this income.
   • The estate must file if it earns $600 or more in a tax year.
3. Paying Outstanding Taxes:
   • Review the deceased’s prior tax filings for unpaid liabilities.
   • Use estate funds to pay any taxes owed before distributing assets to beneficiaries.
4. Handling Notices and Communications:
   • Respond promptly to any IRS inquiries or audits.
   • Keep organized records of all correspondence and tax payments.
5. Distributing Assets:
   • Ensure all taxes and debts are settled before distributing assets to avoid personal liability as the executor.
   • Provide beneficiaries with necessary tax documentation, such as Schedule K-1, for reporting income received from the estate.

Practical Tips for Legal Professionals

• Collaborate with Tax Experts:
  • Work closely with accountants or CPAs who specialize in estate taxes to navigate complexities and reduce risks of errors.
• Stay Updated on Laws:
  • Estate and tax laws evolve frequently. Regularly review federal and state regulations to stay compliant and provide accurate advice.
• Document Everything:
  • Maintain detailed records of all filings, communications, and transactions for transparency and accountability.
• Educate Your Clients:
  • Provide clients with clear, step-by-step instructions to minimize confusion and prevent delays in processing.