A loved one has died and you’re in charge of settling the estate. There’s a long checklist of things that need to be done, from notifying Social Security to probate to disposition of assets. One other item on that list is filing the final tax return for the deceased.
The final individual income tax return of a decedent is prepared and filed in exactly the same way as when they were alive. All income up to the date of death must be reported and all credits and deductions to which the decedent is entitled may be claimed. Use Form 1040 or 1040-SR or, if the decedent qualifies, the 1040 EZ. At the top of the form, list the date of death. Be sure to put the date of death at the top of the form. If there is no surviving spouse, then the executor, trustee or administrator must file Form 56 telling the IRS that they are the person responsible for the final tax return.
If there is a surviving spouse, that person can file a joint return with the status of married filing jointly no matter when the death occurred that year. One exception to that rule—if the surviving spouse remarries before the year of death is over, then the status for the deceased taxpayer’s return has to be married filing separately.
April 15 is the filing deadline for decedent returns just like it is for living taxpayers. If you can’t get all the paperwork together to file by that deadline you can file an extension to October 15. But even with an extension, if money is owed to the IRS it has to be paid by April 15.
If the decedent is due a refund from the IRS, the executor files a Form 1310, “Statement of Person Claiming Refund Due a Deceased Taxpayer.” The IRS will issue the refund to the deceased’s estate or trust. A surviving spouse is not required to file Form 1310.
Since all income of the deceased has to be reported, that includes any IRA Required Minimum Distribution. If the deceased had not taken their RMD for the year of their death, the RMD must be distributed.
Medical expenses for the deceased should also be considered on the final tax return. It’s not unusual for medical bills to come in after the person dies. For those expenses to be considered as deductible expenses:
- The medical bills must be paid out of the decedent’s estate
- Total medical expenses exceed 7.5 percent of adjusted gross income
- The tax return must be itemized
Here is a list of items that may be necessary when filing a final tax return.
- W-2s, 1099s, form 5498 and any other documents showing income for the year of death.
- IRS form 1040
- Death Certificate: Some states require a death certificate sent to them along with the federal return.
- Form 56: If you are a trustee, executor, administrator or other person responsible for the person’s estate, Form 56 notifies the IRS that you are the person responsible for filing the final return.
- Form 1310 “Statement of Person Claiming Refund Due a Deceased Taxpayer: This form is necessary if the final tax return shows a refund due. The IRS will pay that refund to the estate of the deceased.
- Form 1041 “U.S. Income Tax Return for Estates and Trusts”: This is for returns showing more than $600 in annual gross income (dividends, interest, proceeds from the sale of assets) receive after the decedent died.
- IRS Publication 559: This contains a lot of information about filing a final return if you intend to do it yourself. Keep in mind, as the person responsible you take on some financial risk, and any mistakes may come back on you. It’s always a good idea to consult a tax professional who’s familiar with the rules.
If the decedent has not done so, you may also have to file individual income tax returns for years preceding the year of death. From IRS correspondence you find in their personal records, you may learn that the decedent has not filed required returns. You may also obtain verification of non-filing and certain income documents of the decedent from the IRS using IRS Form 4506-T, Request for Transcript of Tax Return.
This article is presented as information only and should not be considered financial, tax or legal advice.