When a deceased person passes away, the executor of an estate must file a Federal Estate Tax Return. This tax return is used to report after-death income and expenses. No matter how a person dies, an executor must file a federal estate tax return. You can learn more about the duties of an executor from IRS Publication 559. In general, executors must file the deceased person’s federal and state income tax returns.
The tax return is due nine months after the individual passes away. It is also due six months after the date of death. You can extend the time to file your estate tax return if the tax is expected to be paid before the deadline. In Canada, however, there are no inheritance taxes. However, you should keep in mind that any tax debts accrued after the deceased person dies are subject to capital gains tax.
In a typical case, an executor may erroneously file a Final Estate Tax Return. Although an executor has a legal obligation to complete the duties reasonably, mistakes can happen. Joan hired an attorney to file the estate tax return on Ethyle’s behalf. This was more reasonable than trying to do so herself. Joan was a poor housewife, not an accountant, and her attorney made a mistake on the estate tax filing deadline.
In addition to the estate tax return, the executor or trustee may need to file a Gift Tax Return if there were taxable gifts during the deceased person’s lifetime. An estate tax return should be filed if the combined total of the taxable gifts made in a single year exceeds $5,000,000. If the value of these assets is over $5 million, the executor or trustee may be required to file a federal estate tax return, claiming portability, which means capturing the deceased person’s unused federal exemption.
Another way to avoid tax liability is to file a joint return with the surviving spouse of the decedent. This will help both parties benefit from lower tax brackets. However, if the decedent had a capital gain, it may be beneficial for the executor to file a joint return in order to offset it. Furthermore, filing jointly can save the executor from liability, as the surviving spouse may be responsible for the tax.
If you are the executor of an estate, you should consider contacting a qualified CPA firm. These firms can prepare a final estate tax return. They can help you complete and file all required documents and paperwork. Your executor should have letters of administration. These letters of administration will give the executor authority to act on behalf of the estate. It is also vital to file a Final Estate Tax Return. It may take six to twelve months to get this approval.
There is a third option: filing a protective election. The IRS allows an estate to make a protective election if a portability election is not made at the time of timely filing. One example of this is shown below. The executor files a complete estate tax return but fails to follow instructions for opting out of portability. This is called a “portability” election. This option allows an estate to take advantage of a tax reform that may result in a lower estate tax bill.