When a person dies, their estate is a separate legal entity for federal tax purposes. This means that the executor of the deceased person’s estate must file a Final Estate Tax Return as well as a final personal income tax return on their behalf. This can be confusing for someone who is not familiar with the process, so it’s important to have an understanding of when this tax return should be filed, how it should be completed and what happens when it is filed.
What is the Difference Between an Estate Tax Return and a Final Income Tax Return?
The difference between an estate tax return and a final income tax return is that an estate tax return reports all of the decedent’s income that occurred up to the time of death, while a final income tax return reports all of the decedent’s earned income that happened after the date of their death. This is because the IRS considers income earned after a person’s death to be income in respect of that person, which is taxable either to the estate or to the recipient of that income (i.e., the beneficiary of an investment account).
A final income tax return is usually completed by the decedent’s personal representative or executor, whose job is to complete the form on behalf of the deceased. This may be the deceased’s spouse or another family member, or their accountant if they had one at the time of death.
What Types of Income Are Typically Reportable on a Final Estate Tax Return?
A final estate tax return is generally required when a decedent’s net estate exceeds the estate and gift tax exemption amount. For 2015, this is $14,000 for singles and $25,000 for married couples.
What Does the Due Date of a Final Estate Tax Return Typically Require?
The due date of a final estate tax return is generally 9 months after the decedent’s date of death. However, this date is not always met. When a due date is not met, an extension may be granted.
If the estate isn’t settled within 12 months of the date of death, the executor has to file another income tax return. This is called a fiduciary return and is used when the executor is required to report estate income that may be subject to federal income tax.
When and How to File a Final Estate Tax Return
A final estate tax return can be filed by the personal representative or executor of an estate or the surviving spouse of a decedent, if there is no personal representative. It’s filed on a form that is similar to Form 1040 or Form 1040-SR. It also has a section to enter the name of the decedent, their social security number, the estate’s FEIN and the county where the estate is located.
The personal representative or executor must submit the return on or before the federal due date, which is normally April 15 of the year following the filing year. You can also extend the due date for a short taxable year, but you must wait until the returns are ready to be filed under extension before you do so. If you do not file a return by the due date, the penalty and interest for failure to do so will be assessed.
