Final Estate Tax Return

When a loved one passes away, estate planning is often the first task to go on a family’s “to-do” list. However, many people don’t realize that the deceased person’s assets can continue to earn income – and that means that estate tax returns will likely need to be filed.

The executor of an estate, or a personal representative acting on behalf of the deceased, is responsible for filing the final estate income tax return (Form 1041), as well as any state income taxes that may be due. Form 1041 is due the 15th day of the fourth month after the estate’s tax year-end (or April 15 of the following year if using a calendar year accounting period). It reports the estate’s gross income and deductions, and also allocates any capital gains or losses to beneficiaries on Schedule K-1. Depending on the type of assets in the estate, there could also be miscellaneous deductions such as investment advice fees or safe deposit box rental costs.

As with a regular individual income tax return, the Form 1041 must be prepared and signed in the deceased person’s name, with “Deceased:” written at the top of the form followed by their date of death. The preparer must also certify that the information on the return is true and accurate. Beneficiaries are then required to report any distributions on their own individual tax returns.

A final estate tax return is usually required for small to medium sized estates, but larger estates are sometimes subject to an additional federal tax called the generation-skipping transfer (“GST”) tax. This tax is levied on the amount of wealth that exceeds the estate’s applicable exclusion amount – currently $11.1 million per taxpayer, or $22.8 million for married couples. A GST return is typically required for estates that are worth more than this threshold, or when the deceased had significant gifts made during their lifetime.

For most estates, preparing and filing the final income tax return will be the only time that an estate will be required to file a federal return. However, an estate can still be required to file a state income tax return, so it’s important for the executor or personal representative to research the laws in their jurisdiction and be familiar with local tax requirements.

In some cases, the IRS can pay interest on late refunds of estate tax payments, so if a family is waiting for a late refund to arrive, they should make an effort to keep in contact with the IRS to request it.

While some families find it easier to handle these tasks themselves, others need help from an experienced tax professional. In either case, it’s always a good idea to consult with a certified public accountant. The IRS has a directory of tax professionals here.

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