Filing a Final Estate Tax Return

The estate of a deceased person is a complex legal entity that contains everything the deceased owned, from their house to investments in stock, bonds and mutual funds. The deceased person’s liabilities must also be considered for inclusion in the estate. The executor or personal representative must evaluate the value of the assets and then determine how much tax to pay. If there is any taxable income, the estate must file a final fiduciary income tax return. This is known as a Form 1041. This is different from a normal individual income tax return, with certain specific forms required to report different types of income.

The first step is to complete the decedent’s last federal income tax return, or Form 1040. This should include the decedent’s name and date of death. The return should clearly mark that the taxpayer is dead, by writing “Deceased” at the top of the return, along with the decedent’s social security number and the estate’s federal employer identification number (FEIN).

If the estate has income for only part of a year, then a short taxable period return can be filed. Typically, the estate’s tax year begins on the date of death and ends on December 31. However, the executor can choose to use a fiscal year instead of the calendar year. In either case, the return is due four months after the close of the estate’s taxable year.

It is important to note that if the estate does not file its returns, or if it pays less than the amount owed, interest will be assessed. The amount of interest is determined by the IRS and is based on the unpaid balance of the taxes, not including penalties.

In addition, the state of California assesses a five percent (5%) per month penalty on any amount not paid by the due date of the return. The penalty is compounded daily.

If a deceased taxpayer is owed a refund for individual income tax, the executor or personal representative may file an IRS Form 1310. This is known as the Statement of Person Claiming Refund Due a Deceased Taxpayer. This form requires the name and Social Security number of the deceased, the taxpayer’s spouse if applicable, the claimant’s tax identification number and other relevant information.

If you have questions about preparing or filing an estate or trust tax return, contact the experienced Estate and Trust Team at Boulay. We can help you navigate this complicated process to ensure that your loved one’s wishes are carried out properly. Call us today at 1-800-495-1188. We look forward to hearing from you! We can also help you prepare and execute a comprehensive estate plan for your family.

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