After a family death, the last thing a grieving person wants to deal with is a pile of paperwork. But in addition to all the personal matters that must be sorted, surviving family members are usually tasked with dealing with IRS paperwork at tax time. When a loved one dies during a tax year, a final tax return may need to be filed with the IRS, but first the family must decide who is responsible for handling it.
When someone dies, an estate is created that collects all of the deceased’s debts and assets. Generally a person is named the executor of that estate, either through the late person’s will or by the laws in that state. If there is a surviving spouse, that person will take precedence, but if there’s no spouse the deceased’s children, parents or siblings will shoulder the responsibility, in that order.
While the executor of the estate is ultimately responsible for ensuring the return is filed, that person doesn’t have to do the work alone. The return will need to be submitted by the April 15 tax-filing deadline to avoid penalties. The return will be filed using the same method a living person’s tax return is filed, with two major exceptions. The word “deceased” should be placed in parentheses after the decedent’s name and the date of the taxpayer’s death should be written at the top of the tax return.
If the deceased taxpayer is entitled to a tax refund, the executor will need to file Form 1310, which is a request for a refund due to a deceased taxpayer. Complete this form even if you’re a surviving spouse filing jointly with your late husband or wife. Having the supporting documentation will help if the IRS has questions about your return.
When the tax return is signed, it should be signed by the appointed personal representative for the deceased taxpayer. If no personal representative has been appointed, the spouse can sign the return and note next to the signature, “Filing as surviving spouse.” In the absence of either of those, the person who is in charge of the deceased’s property should sign the return and note that he is signing it as the individual’s personal representative.
When claiming the taxpayer’s income, claim everything from the beginning of the year to the date of death. It’s important to distinguish whether the taxpayer uses the cash or accrual accounting method, since that will determine whether the income is considered income in respect of a decedent. When classified as such, the money passes through the estate as income, rather than through the deceased’s tax filing.
When a taxpayer dies with investments and pensions, much of that income is taxed to the person who inherits those funds. One exception is the Roth IRA and Roth 401(k), which are tax-free at the point of distribution as long as the investment was made five years prior to the person’s death. If less than five years has transpired, the surviving family members can have the inherited IRA rolled over into a Roth IRA until the five years is up. If a deceased’s assets are exceedingly high in value, Form 706 may be required to figure the estate tax imposed by the IRS. This applies to estates valued above $5.34 million.
Unless the deceased was a meticulous record keeper, it may be challenging to collect all of the tax deductions he or she incurred from the beginning of the year until the date of death. Deductions must stop at the point of the person’s death, including monthly recurring expenses.
One item that can be claimed after death is any medical bills that were incurred prior to death. Those can be claimed as long as they’re paid within a year of the person’s death. If a family chooses not to itemize on a return, the IRS will allow the full standard deduction to be claimed, regardless of when the person’s death fell within the tax year.
The spouse of a decedent can also file as a qualifying widow or widower for up to two years following the death of a significant other. In doing this, the spouse will be able to enjoy the benefits of filing jointly for as long as possible. This can help relieve some of the financial burden that comes with losing a significant other.
Filing on behalf of a deceased loved one doesn’t have to put an additional worry on your family. If you feel as though you need help, don’t hesitate to ask a loved one to assist you in preparing the appropriate tax forms. You’ll likely find you have more support than you realize was available.
Stephanie Faris writes for GOBankingRates.com, a personal finance news and features site.