There are things that are inevitable, some of them are death and taxes. As a loved one bid goodbye from mortality, his liability from this world remains that would be the responsibility of the surviving family member if there is any. When the deceased has named you as the executor of his will or as a trustee of the trust he has created, is a huge responsibility. While you are wrestling with your personal feelings about the loss, you are somehow supposed and expected to start tossing all the various ball in the air. You may find yourself planning for a funeral, buying food for the after funeral collation, at the same time creating an estate calendar and figuring out what the decedent owned and owed. For the fact that IRS does not excuse death for the final accounting of the estate of the deceased.
If someone dies, a new taxpaying entity which is the taxpayer's estate is born. The person in charge of the estate is responsible for making sure the tax return is filed such as an executor, administrator, spouse or anyone else in charge of the decedent’s property. If the decedent held title to a property, whether on his name alone, as a joint tenant, or in the name of his revocable trust, all these properties are subject to federal estate tax.
In resolving tax matters, you may need Letters Testamentary to gain control of the decedent’s assets. It is a document issued by the court during probate of a decedent’s estate. It grants the estate administrator, executor or personal representative of the deceased, authority to manage the affairs of the decedent and their estate. A copy of this document must also be attached whenever you request from the IRS information from the decedent's personal records.
Generally, the representative will file Form 1040 and report any income they received and any deductions and credits they were eligible for, just like how the deceased person would have done if alive. The estate representative should also pay any tax that is due and can, if needed, claim a refund on Form 1310. The word “DECEASED” should be indicated in the return along with the person's name and date of death. The person managing the properties of the deceased should sign the return. If it's a joint return with a surviving spouse, then the spouse should sign the return and indicate that they are signing as surviving spouse on the tax return itself. If the return is prepared by an executor or court-appointed personal representative, a copy of court-issued appointment documents must be attached with the return.
In respect to the decedent’s income filed in the return, this refers to earnings or income earned up to the time of death. For savings or earnings that accrued after death, it is taxable to the beneficiary of the account, or to the estate. The representative must report the earnings or income to the IRS on a 1099 form. If the representative will find that the prior year returns for the decedent were never filed, it must be filed in order to close the decedent’s estate.
On another side of the coin, all deductible expenses paid before death can be written off on the final return. All the medical bills paid within one year after death may be treated as having been paid by the decedent at the time the expenses were incurred. This implies that the cost of a final illness can be deducted on the final return even if bills were not paid until after death. Full standard deduction can be claimed even if deductions were not itemized in the final return and regardless of when during the year the taxpayer died.
If the decedent has left tax liabilities and are due, it should be paid from the estate by the authorized representative who has control of the deceased taxpayer’s money. Taxes must be paid prior to the distribution of funds to the beneficiaries. If the money in the estate is insufficient to cover the tax liability, the debt does not get transferred to the person in charge of the decedent’s property. However, if the money would have been available for the tax debt had it not been distributed to beneficiaries, then the debt will be transferred to the personal representative of the estate.
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