No one likes doing taxes, but the task is even more daunting when filing a return for someone who has died. If you are preparing a 1040 federal income tax form for a spouse or parent, you are grieving while also gathering tax records. If you are the executor for an estate, you may not know the history of the decedent’s tax situation nor have the access you need to important documents. To help alleviate the hassles, we talked to experts about how a decedent’s tax return might be different from the usual 1040 form, as well as the pitfalls to avoid as you prepare to file.
1. Know marital filing status
A surviving spouse will file a joint return for the year of death and write in the signature area: “Filing as surviving spouse.” The spouse also can file jointly for the next two tax years if he or she has dependents and has not remarried. This special provision for qualified widows and widowers allows the surviving spouse to benefit from the advantages of a joint return, such as the higher standard deduction.
2. Get authorization to file
If there is not a surviving spouse, someone needs to be chosen to file the tax return. Options include the estate’s executor if there was a will, the estate administrator if there’s not a will, or anyone responsible for managing the decedent’s property.
“Typically, we see it as the surviving spouse or child, a trustee, a business partner in real estate, et cetera,” says Stephen A. Bonfa, a Brooklyn, New York, tax attorney. Personal representatives notify the IRS of their right to file the tax return by including Form 56 with the 1040, Bonfa adds.
To prepare the return — or provide necessary information to an accountant — you will need to access financial records. Most financial institutions will want a copy of the certified death certificate before releasing information.
3. Find last year’s return
This is your starting point. "That becomes your checklist of the documents that you'll be expecting for the current year,” says Sheila Brandenberg, a CPA with clients in New York and New Jersey. If it’s a paper return, you need to find it. Returns filed electronically can be tricky if you don’t know the password to sign in to the software used or perhaps can’t even turn on the decedent’s computer where files are kept. An important step in estate planning is to give passwords to a trusted person or instructions about how to access that information after your death.
If you can’t find last year’s return, you can submit Form 4506-T to the IRS to request a transcript of the previous tax return, notes Simone Alting, associate partner, U.S. Tax and Advisory Services, at the KNAV firm in Atlanta. The transcript summarizes what was on the return, including filing status, taxable income, tax payments and more. The IRS also can provide source documents such as a W-2 or a 1099-INT from a bank or a 1099-R for a pension distribution from a union — all the documents sent to the IRS on your behalf — which can help you know what documents to gather now. “You would basically be playing detective and going back and trying to recreate this information for that person,” Brandenberg says.
4. Update the address on the return
If you’re not a surviving spouse or didn’t live with the decedent, make sure you update the tax return to list your address as an “in care of” address. That way, any correspondence with the IRS will come directly to you. “Most tax programs have that line ‘in care of,’ ” Brandenberg says.
5. Assess medical costs
The deduction for medical expenses is the amount that exceeds 7.5 percent of adjusted gross income. Many people are fortunate that they don’t hit that threshold. But if the decedent was chronically ill, medical expenses can add up. Hospital stays, nursing homes and care from aides can push medical costs into the territory of being deductible.
6. Get extra time to file, make payments
There is no special treatment because someone has died; however, the executor or surviving spouse can benefit from provisions available to all taxpayers. If you can’t file by the deadline, request an extension and do your best to estimate what any tax liability might be. It will give you some breathing room to gather the paperwork you need to complete the return. Also, the IRS may give you a break on penalties for not filing because you were dealing with funeral arrangements, for example, but you have to cite a reasonable cause, Bonfa says.
If funds are tied up in the estate, reach out to the IRS to make arrangements to pay taxes owed over time. “See what they can offer you,” Alting says. Keep in mind that interest will be added.
The executor or administrator is never on the hook for taxes owed. ”If the assets are not sufficient to pay the taxes, the administrator does not have any obligation to take money out of his or her pocket to pay the deceased taxpayer’s taxes,” Brandenberg says.
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7. But limit the IRS’ time to assess taxes
The IRS has three years to determine if you've paid the right amount for that tax year. But you can cut that time to 18 months by filing Form 4810, which is a request to the IRS for a prompt assessment of tax, according to Bonfa. As you prepare the return, you may miss a 1099 or other document, unintentionally understating income. If you skip filing Form 4810, the IRS could notify you of taxes owed up to three years later, likely after you’ve distributed the estate’s funds. “You’d have to go back to the people that you gave distributed assets to and say, ‘Give me some money back.’ So that's why they have this ability to have this done in a shorter time period. So it's important to file that,” Bonfa adds.
8. You may be filing multiple returns
If someone dies in January or February, you may be responsible for filing the tax return for last year and this year. “It may not meet the filing requirements. Sometimes I'll have people do it anyway, just to close things out. But they at least need to consider that there might be a filing obligation for that short period of time that the person was alive in this new year,” Brandenberg says.
The other situation is that the decedent did not file a previous year’s return, perhaps because he or she was very ill. “You won't know until a notice comes in the mail, saying that we don't have a copy of [the decedent’s] return,” Brandenberg notes. This is another reason it is important to file Form 4810, requesting that the IRS has only 18 months to assess tax, Bonfa notes. “You don't want to have surprises,” he says.
A tax return, or Form 1041, also may need to be filed for the estate if it has earned more than $600. Because it can take a long time to wind down an estate and pay heirs, a 1041 may need to be filed the following year, too — a healthy brokerage account could generate more than $600 income for the year. "Sometimes it takes a long time to distribute the estate,” Alting says.
9. Be aware of the estate tax
An estate tax return, Form 706, must be filed if the gross estate of the decedent is valued at more than $12.06 million for 2022 or $11.7 million for 2021. The IRS looks at the full financial picture: real estate, brokerage accounts, IRAs. Still, it’s a high threshold. “For the most part, it doesn't apply to the average person at all,” Brandenberg says. But that could change if Congress considers legislation to lower the estate tax threshold. “That's the big thing to watch. At the federal level, it is a changing area of law,” Bonfa says. “We are predicting in our industry that it is going to be reduced.”
The tax preparer also has to be aware of any estate tax levied by the state where the decedent lived.
10. Consider hiring a professional
If all this sounds daunting, you may want to hire a CPA or tax attorney. A decedent’s return will be more complicated than what you filed last year with your spouse, or you may be starting at zero if you are preparing the return for an aunt. A professional will know what information you need. “If you have the right CPA who can steer you in the right direction, you can save on, for example, deduction of medical expenses or not paying penalties that you might have overlooked if you haven't filed the right form, or if you miss something,” Alting says.
Consider the emotional side, too. “It’s a good time to reach out to a professional to help with the heavy lifting, so all of that burden doesn’t fall on the person,” says Brandenberg, noting that handling an estate and tax return can be overwhelming when someone is mourning. “Getting as much help as you can from people you trust will be very important.”
Sharon Waters, a former CPA, has written for Wired.com and other publications.