Final Estate Tax Return Facts

If you have been assigned a final estate tax return then there are many things that you should know. You will likely have many months of financial obligations that need documenting, document gathering, paperwork, and final court filings. Depending on the quality of your deceased person or final estate plan there could be an Estate Planning Trust, Annuities, Purchase agreement, Last will and testament, and a Final Residence Trust. The last option is especially important, as it gives you the ability to restructure your assets before passing away if you desire.

You will likely have many options for your final estate tax return. The first is to choose one of the three exemption amounts. These are: low, moderate and high. You will need to determine which one(s) you should use based on how much taxable income you have. Your taxable income will include any interest from bank loans, alimony, dividends, interest from investment property and rental properties, gifts, inheritances and others.

Once you determine your taxable income then you can fill out the final estate tax return with accurate information. You must attach copies of tax returns filed in each of the previous three annual fiscal years. Also attach copies of military retirement accounts, social security cards, birth certificates, marriage licenses and marriage records for your dependent children. You can also include letters from your doctor, accountant or other legal advisors.

Some estates have a tax waiver attached to them and others do not. If the estate is exempt then the beneficiaries will be taxed according to their individual income tax liability. If the estate is subject to estate tax then the heirs will receive a final tax bill that will include the final capital gains rate, inheritance tax, gift taxes, state taxes and other applicable taxes. The heirs may choose to pay the taxes or retain the inheritance.

If the estate tax return has an exemption amount then it may not be taxable to the beneficiary. The final capital gains rate will not apply to the value of your estate when it is transferred. If the transferred assets are below the exemption amount then the transfer proceeds will be taxed as ordinary income. If you are unsure if the assets are exempt or taxable contact a qualified estate planning lawyer or tax consultant.

Most people file their federal and state tax returns using the form named “form W-2”. This form contains instructions on what type of financial accounts to report, such as checking, savings, brokerage accounts, certificate of deposit and stock investments. It does not contain information about the various estates and trust that exist and are used for the final estate income tax return. The estate income tax return must be submitted to the IRS within one year. If the executor does not forward the form by the deadline then they could lose their tax-deferred status. The forms can also be lost if they are filed electronically and the IRS receives notification that the return has been submitted electronically.

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