Settling an estate means paying the final tax bill. You can use the usual tax forms and Internal Revenue Service guidelines to file taxes on behalf of a deceased person, but it is always advisable to get help from a trusted tax professional.
When a loved one dies, part of settling their estate is paying the final tax bill. Filing taxes on behalf of a deceased person may require some detective work and a good understanding of tax laws. Working with a qualified tax expert can make this task easier and less stressful if resources permit. Read on to understand the basics and how to proceed with a simple tax return.
Do I have to pay taxes for a deceased relative?
A deceased person must file a tax return in their name for the last year. There is an exception if the person does not have to file a tax return if they were alive, for example, if they do not have enough income to require it. See the table below for the minimum amount of gross income required to file a tax return.
You should also contemplate filing a tax return if you are a surviving spouse and intend to file a joint return, if the deceased is entitled to refundable tax credits, or if you believe a refund is due for some reason.
How to file a tax return on behalf of a deceased person
Follow these laid down steps to file a tax return on behalf of a loved one:
Determine who must file the return: The responsibility for filing a deceased person's tax return generally rests with the administrator or executor of the surviving spouse's estate. A surviving spouse who normally uses marital status to file their application can file their taxes as usual. At the top of the form, the surviving spouse will write "deceased," the name of the spouse, and the date of death. If you are filing taxes as an executor, attorney, or legal representative, include Form 56 with the completed Form 1040 or 1040-SR to show the IRS that you are eligible to file.
Know the correct filing deadline: Income tax returns are due until the income tax due date within one year of the person's death. So, for example, someone who died in 2022 would have a final tax return by April 18, 2023. You can request an automatic extension using IRS Form 4868 if you need more time.
Complete the return: You will use the same tax forms the deceased would have used had they been alive. Getting the info you need can be difficult if you've never been involved with a person's finances. The previous year's tax return can be a helpful roadmap, with clues on where to look for W-2s and 1099s and investment account income and bank interest. Find a paper copy of a recent tax return or use the information in the IRS Guide for Deceased Persons to obtain a transcript of their previous tax return. You should also find any documents filed with the Internal Revenue Services on the individual's behalf, such as 1099s.
You may need to file several tax returns, including local, state, federal, and business returns, and you may need to file numerous tax returns. For example, if someone dies in January 2022, they will likely have to file tax returns for 2021 and 2022.
Remember that medical expenses exceeding 7.5% of a person's adjusted gross income are tax-deductible if you report the deductions on your return. These expenses may be deductible. Eligible expenses include medical expenses paid within one year of the person's death.
When filing taxes for a deceased loved one, you may have several questions. Here are the answers to common dilemmas in this situation:
What about property taxes? In 2022, the gross value of a property must exceed $12.06 million for federal property taxes to apply, although state property taxes may apply. Use Form 706 to calculate and file inheritance tax, if necessary. On the other hand, if property ownership brings in more than $600 before it is distributed to heirs, you must file Form 1041: Property Tax Return.
What happens if a refund is due? File Form 1310: A statement from a person claiming a refund owed to a deceased taxpayer to appeal that the refund is issued to the correct party. Also, a surviving spouse can use this form if a refund check arrives in both spouses' names.
What happens if I commit an error or don't account for all the income? The IRS detects many mathematical errors during its automated review process. However, if you incorrectly claim filing status, miscalculate, or mistake deductions or credits, you can file an amended tax return using Form 1040-X, U.S. Amended Tax Return. You have 3-years to file an amended return and to receive a refund. Also, the IRS has three years to notify you of an error it finds. You can submit Form 4810 - Request for Immediate Review to limit this review period to 18 months.
What if this person owes taxes? Taxes owed must be inherited before final distribution to beneficiaries. If the inheritance money is tied to the assets and you need more time to pay them, you can apply for an installment agreement with the IRS. You will likely pay penalties and interest on the outstanding balance with an installment contract.
Go get help if you need it.
Completing your tax return can sometimes be confusing, and completing another person's tax return can be difficult. A trusted tax expert can help you navigate your tax filing requirements, suggest a payment plan for taxes owed or request a refund, and avoid potential problems.
Finally, remember that deceased taxpayers may be subject to identity theft. Scammers can get information from obituaries or run phishing scams to gather the information that will help them file fraudulent tax returns. To protect the deceased from identity theft, a copy of the death certificate can be sent to the Internal Revenue Service at the address where the taxpayer would normally file a paper return. You can also notify credit reporting agencies and check a copy of the deceased person's credit report for identity theft.
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