When someone dies, their assets and property come together to form what’s known as the estate. When an estate is large enough, someone must file tax returns on its behalf. If you’re in charge of handling the estate of a loved one, it’s important to know which taxes are due and when they’re due. This article will cover the three types of federal income tax return you may need to file and other estate-related forms.
The first type of income tax return you need to file is the deceased individual’s final Form 1040, the same form that every U.S. taxpayer files annually. This return must be filed whether your loved one earned income in the year they died or not. There’s a penalty for failing to file the return on time unless you can prove you had reasonable cause for missing it. Reliance on an agent isn’t a valid excuse.
In most cases, the executor of an estate or another person who is responsible for filing the estate’s taxes should report all income that’s received by the decedent. This includes income from traditional IRAs, 401(k)s, 403(b)s and annuities. It also includes interest on bonds and money from a bank account. If the individual owed income tax, you should submit payment through the same methods as people who file regular personal returns (check, debit card, credit card or electronic funds transfer). You can even qualify for payment plans and installment agreements, say IRS officials.
If the estate is owed a refund for individual income tax, you can make a claim using IRS Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. The deceased taxpayer’s executor or representative can also request prompt assessment, which reduces the amount of time the IRS has to assess additional taxes.
You must file Form 1041, Income Tax Return for Estates and Trusts, when a deceased person’s estate generates at least $600 in income or has taxable income. You must also report the estate’s distributions to beneficiaries on Schedule K-1, which is attached to Form 1041. The return is typically due by the 15th day of the fourth month after the estate’s accounting period ends, or April 15 of the following year if you use a calendar-year accounting period. You can apply for an automatic five-month extension by submitting Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information and Other Returns.
In addition to these federal forms, you’ll likely need to file state and local taxes on behalf of the deceased. It’s important to speak with a knowledgeable estate tax professional to ensure you understand your state’s requirements. For example, many states have their own inheritance tax and require you to file special forms with the state. You should also check with a local tax attorney for help with state returns. The last thing you want is to overpay the estate’s taxes and end up in a dispute with the IRS.