How to File Taxes for a Deceased Person

Filing taxes for a deceased person is a critical responsibility to ensure compliance with tax laws and proper management of the decedent’s financial affairs. While the process can be complex, it is essential to settle outstanding tax obligations or secure potential refunds.

Executor Appointment

Appointing an executor is the first step in managing the tax affairs of a deceased individual. Typically named in the decedent’s will, the executor has legal authority to handle the estate’s financial matters, including taxes. If there is no will, a court may appoint an administrator. Executors must understand the decedent’s financial situation and relevant tax laws.

To act on behalf of the estate, the executor must obtain “letters testamentary” or “letters of administration.” These documents allow access to financial accounts and communication with the IRS. Filing Form 56, “Notice Concerning Fiduciary Relationship,” notifies the IRS of the executor’s role and ensures correspondence is directed appropriately.

The executor must adhere to tax deadlines, such as filing the final individual tax return, typically due April 15 of the year following the decedent’s death. They should also determine if an estate tax return is necessary, which applies if the estate’s value exceeds the federal exemption threshold of $12.92 million in 2024.

Gathering Income Reports

The process begins with collecting all income reports. Executors must gather W-2 forms for wages, 1099 forms for dividends and interest, and K-1 forms for partnerships or trusts. They should also account for less obvious income sources, such as retirement account distributions, Social Security benefits, and rental property income. Accuracy is key to avoiding complications with the IRS.

Income reports should be categorized and organized according to IRS requirements. Using accounting software or consulting a tax professional can help ensure all relevant income is documented and errors are minimized.

Filing the Individual Final Return

The final individual tax return, often referred to as the “1040,” must include all income earned by the decedent from the beginning of the tax year until their date of death. This return also accounts for deductions, credits, and liabilities.

Executors should explore deductions and credits that may benefit the estate. For instance, medical expenses paid within a year of death can be deducted if not previously claimed. Tax credits, such as the Earned Income Tax Credit, may also apply if the decedent qualified before passing.

Capital gains or losses require special attention, particularly for investments. The “step-up in basis” provision adjusts the value of assets to their fair market value at the time of death, potentially reducing taxable gains. Accurate documentation of these adjustments is essential.

Estate Tax Return If Needed

An estate tax return, or Form 706, is required if the estate’s value exceeds the federal exemption threshold of $12.92 million for 2024. This form calculates the tax liability on wealth transfers to heirs. The gross estate value includes assets such as real estate, stocks, business interests, and life insurance proceeds, while deductions for debts, administration expenses, and charitable contributions reduce the taxable estate.

The estate tax rate, capped at 40%, applies to amounts exceeding the exemption. Executors can reduce this burden through strategies like marital deductions, which allow unlimited asset transfers to a surviving spouse without incurring estate tax. Portability elections enable the transfer of any unused exemption to a surviving spouse, effectively doubling their exemption.

Handling Liabilities

Executors are responsible for addressing the decedent’s outstanding liabilities, such as mortgages, credit card debts, personal loans, and unpaid medical expenses. These obligations take precedence over distributions to heirs under probate law.

To manage liabilities, the executor must create an inventory of debts by reviewing the decedent’s financial records and verifying claims with creditors. It is important to differentiate between secured debts, backed by collateral, and unsecured debts. This distinction informs repayment strategies.

If necessary, the executor may liquidate estate assets to settle debts, ensuring timely payments to avoid penalties or interest. If the estate lacks sufficient liquid assets, negotiating with creditors or seeking court approval to sell assets may be required.

Claiming Refunds

After liabilities are settled, the executor can address any overpaid taxes or refundable amounts owed to the estate. This may involve filing amended returns for prior errors or claiming refunds for prepaid taxes or estimated payments that exceeded the actual tax liability.

To claim a refund, the executor must file the appropriate forms with supporting documentation. For federal income tax refunds, IRS Form 1310, “Statement of Person Claiming Refund Due a Deceased Taxpayer,” is required if there is no surviving spouse. Additional documents, such as a death certificate and proof of executor appointment, must accompany the claim to facilitate the process.