Tax season is usually a period of life full of potentialities. There’s the potential to receive a tax refund, realize those tax-deductible expenses you remembered to claim, or–on the more negative side–realize you owe the IRS funds for the previous year.

Having to deal with these contingencies (both positive and negative) is an emotional roller-coaster, to say the least.

If you have been recently named an executor or administrator of a loved one’s estate, you probably feel you have even more to deal with. Past bank accounts to wrap up. Trying to avoid probate.

Navigating the complex web of tax forms and regulations may be the last thing on your mind.

Thankfully, tax filings for a decedent do not have to be unnecessarily complex. In this post, we’ll break down key steps for filing a loved one’s tax returns.

Upon the passing of an individual, multiple tax filings may need to be completed depending on the financial situation of the decedent and their estate.

The two most common filings that will need to be completed promptly are the individual’s tax return and the estate’s income tax return.

Individual Tax Return

According to the IRS (Internal Revenue Service), filing a decedent’s tax return is generally done the same way as if they were still alive. Accordingly, you would report all of the income, credits, and deductions to the IRS up to the date of death.

If the deceased had not filed a return for previous years, you as the executor are obligated to file those as well.

Finally, if any taxes are owed it is the executor or administrator’s responsibility to pay those, along with receiving any applicable tax refunds.

To expedite the process for you, below are some of the forms required for the aforementioned filings:

Estate Income Tax Return (income generated from estate assets)

In keeping with IRS guidelines, if your loved one’s estate generated above $600 dollars in annual revenue then you will be required to file Form 1041.

As you may already be aware, when an individual dies, any assets or property they own generally belongs to the estate (except if a lady bird deed was used to transfer property–for instance).

These assets may be able to generate income and if so, this income will need to be reported to the government. Here’s a brief list of types of assets that may produce income:

• Bonds
• Mutual Funds
• Stocks
• Savings Accounts

Estate tax returns are usually only filed when the assets of the estate reach a certain value threshold. Specifically, if all the totally assets reach a value of $12.06 million or more as of 2022, then as the executor you will be required to file an estate tax return.

It is crucial to note what your state’s estate tax return policy is, as it may differ substantially from federal guidelines. For example, in the state of New York, if the estate’s value is at or over $5.93 million a return will need to be filed.

In many cases, consulting with an estate accountant may be the most practical option given how complex estate taxes can be.

When is the estate tax return due?

Estate tax returns must be filed and paid within nine months after the date of death. While this may seem to be a short period of time, the estate is granted an automatic six-month extension upon filing Form 4678, but the executor will still need to pay an “estimated tax amount” (think of an educated guess) within the nine-month period. Failing to file or pay on time will result in interest and/or late fees.

To reiterate, having to file an estate tax return is quite uncommon, as the decedent’s estate will have to be valued at or over 12.06 million dollars. But, if you are one of the few in that situation, here’s some simple steps to get the process moving smoothly.

1. Gather all Information Regarding the Estate

Since an estate return requires the executor to show the breakdown of the estate’s assets and value, it is crucial to take note of any documentation regarding the estate’s property and assets. You are essentially creating a balance sheet of the decedent’s estate.

In addition, make sure you have any documents related to the deceased such as a death certificate, birth certificate, and driver’s license.

2. Find the Required Form and Instructions

In order to file an estate return, you will need to fill out Form 706. This can be completed either online or with a pen and paper. In addition to acquiring the correct form, you should also retain a copy of the instructions, as the form is a massive 29 page document.

3. Find an Estate Professional

Given the massive value in a deceased’s estate required to file an estate return, trying to file this form without any outside help will almost definitely cause more harm than good–unless you’re an accountant by trade. In our humble opinion, we highly recommend finding a trusted estate professional to take care of such a complicated endeavour.

The executor or administrator of the estate is the person required to file the estate tax return. While you may have someone else, such as an accountant fill out the form for you, the responsibility lies with the executor to submit the document to the IRS.

We’re Here to Help

If you are feeling overwhelmed by the myriad of complex steps required for estate tax returns, ClearEstate can help.

We pride ourselves on maintaining a team of estate professionals, accountants, and compassionate staff, to help executors like you find peace of mind. Send us a quick message and let us handle the rest.