When a loved one dies, many of the responsibilities associated with their estate must be managed, including taxes. A financial advisor can help you with the process.
As a fiduciary, you may be required to file an income tax return for the deceased individual’s estate. This tax return is typically known as Form 1041 and is akin to the personal tax returns filed by individuals each April 15. The form identifies all income, deductions, capital losses, or other assets that may be subject to federal taxes. Depending on the size of the estate and other factors, there could be more than one return required.
Typically, an estate must file a Form 1041 when it generates at least $600 in income or has taxable assets such as rented property, stocks, mutual funds, final paychecks, or savings accounts. A return is also required if the estate is nonresident alien or the decedent was not a citizen of the United States at death. Lastly, if the deceased person made large lifetime gifts, a return is typically required as well.
The due date for the form is based on the estate’s fiscal year, which can be any 12-month period starting with the decedent’s death. The return is then due within 6 months of the close of the fiscal year. For example, if your client died on Nov. 10, 2021, then the final Form 1041 would be due on Oct. 30 of 2022.
The form may require an attachment to identify the assets and their market value at the time of death. This information can be found in the decedent’s personal financial statement or a certified copy of the death certificate. It can be helpful to include this report in the estate’s accounting records, as it can provide an accurate picture of the overall value of the estate.
While filing the return is a complicated task, you must be able to rely on the accuracy of the reported values as they will determine how much tax is due and when it must be paid. A good accountant can be an invaluable asset during this time.
Aside from the complexities of tax law, an executor must be aware of other obligations and responsibilities associated with managing an estate. If you have any questions or need additional guidance, you should consult with an experienced probate attorney. Nolo’s lawyer directory can connect you with a knowledgeable local specialist. For more general information on this topic, you can read The Executor’s Guide to the Probate Process by Mary Randolph (Nolo). The IRS also has plenty of resources available here and here. Having the right team on your side will ensure that you complete all required tasks in a timely and efficient manner. Good luck!