Final Estate Tax Return

When a loved one passes away, there is much to do, including making arrangements for burial, notifying relatives and friends, selling assets and finalizing the estate’s affairs. However, one item that often gets overlooked is filing the deceased’s federal and/or New York state tax return. If this isn’t done in a timely manner, it could result in interest and penalties being assessed against the estate.

An income tax return for an estate or trust, also known as a fiduciary income tax return, is filed using IRS Form 1041. This is similar to the personal income tax return, or Form 1040, that you file every year. However, estates and trusts earn their income differently than individual taxpayers do, so the forms are slightly different.

As mentioned earlier, estates and trusts earn their income from the assets they own. This can include money earned from investments, dividends, interest on bank accounts, a sale of assets or other types of income. The estate or trust can also earn tax-deductible expenses on the form, including costs incurred in administering the estate (e.g., executor’s fees, accounting, legal, appraisal and probate expenses).

The first fiduciary income tax return must be filed within nine months of the date of death, although an extension can be requested by completing Form 7004 and paying estimated taxes before the original due date. The estate can also elect a fiscal year end, which can be any month except December, as long as it doesn’t exceed 12 months.

Depending on the size of the estate and the amount of assets it holds, estate taxes may be due. However, the estate’s taxable value is limited by the lifetime gift and estate tax credit of approximately $5.5 million per person. The excess amount will be taxed at a rate of 35%.

Filing an estate tax return can be a complex process. It is recommended to speak with a qualified tax professional before filing an estate’s return.

If you are an executor of a deceased estate or are handling the finances of someone else’s estate, our team at H&R Block can help. We have experienced and knowledgeable tax professionals who can assist you with all your tax needs. Contact us to set up an appointment. We’re here to make the process as simple and stress-free as possible for you and your family. We understand the sensitive nature of our work, and we are committed to treating your situation with care and compassion. Let us take the worry out of preparing and filing your estate tax return. We look forward to working with you!

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