When someone dies, you might be responsible for filing their final income tax or estate tax return. Those returns require focus, and that can be difficult during an emotional time. But, by understanding the process and knowing what IRS forms may be required, you can be better prepared for this responsibility.
In the United States, you might be required to file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return; state death tax returns, if needed; and, income tax returns for both the deceased’s estate and any revocable trusts they created during life. The latter are reported on a Form 1041, which is similar to the individual income tax return. While there are similarities between the two, the estate return has special reporting requirements.
The estate’s first income tax return can be filed at any point up to 12 months after the deceased’s date of death. The executor must choose whether the estate will use a fiscal year accounting period or calendar year. Depending on the circumstances, the personal representative might choose to accrue income and expenses into the current year, which can help avoid overpaying taxes in later years. Expenses include trustee or executor fees, legal and accounting expenses, appraisals, probate costs, expenses to sell assets and more.
Beneficiaries might be entitled to claim itemized deductions for funeral expenses, income in respect of the decedent (IRD) and investment and personal property tax. A beneficiary can also use their own individual income tax return to report IRD as taxable income.
It is important to note that an estate tax return only needs to be filed if the estate exceeds the applicable exemption amount in the year of death. The exemption is currently 11.7 million dollars. However, it is important to consider that this exemption is reduced by any lifetime gifts made in excess of 5 million dollars.
If you are responsible for preparing the deceased’s estate return, we recommend reaching out to an experienced estate planning attorney. They can guide you through the process and prepare the appropriate documents to ensure that all deadlines are met. They can also advise you on how to manage the deceased’s estate and make recommendations to reduce future tax liability. In addition, an experienced attorney can provide guidance on how to navigate the complicated process of obtaining the required signatures. It is important to act quickly after the death of a loved one to ensure that all proper steps are taken to avoid tax penalties. Contact us today to learn more about our services and how we can assist with your estate planning. You can reach out to us online or call 303-872-9810. Our offices are located in Denver, Colorado. We serve clients in the greater Denver area, as well as in the surrounding areas of Colorado and throughout the country. We are committed to providing high-quality, cost-effective service to our clients. We look forward to working with you.
