Filing Taxes for the Deceased – Form 1041 and More

 

If you have a family member who died in 2018, you might be required to file a return for them. Report income earned from the beginning of the year to the date of death on that person’s final return.

A legal entity called an estate is automatically created at the time of death to file a tax return, even for deceased individuals with no estate prior to death. This helps to keep track of all income the deceased earned. On the estate tax return (IRS Form 1041), report any income the estate got after the date of death. This includes income earned from bank accounts or stock while the estate is being managed through a process called probate. The estate must request its own employer identification number (EIN) to use for filing purposes on Form 1041.

You or a personal representative should let all payers of income know of the death. Include financial institutions in your notifications. This will ensure you report all income your family member’s estate or heirs earn. You must also notify the Social Security Administration of the person’s death before the IRS can accept an e-filed return on behalf of the deceased taxpayer. To learn more, contact the Social Security Administration at 800-772-1213. 

Beneficiaries

Many assets, like a life insurance policy or a brokerage account, list a beneficiary. If they do, these assets can avoid probate and be paid directly to the beneficiary. Usually, this money isn’t taxable, but interest earned on these assets after the death of your family member is taxable.

Since the money is paid directly to beneficiaries, interest is considered income in respect of a decedent (IRD). However, both of these must apply:

  • It’s interest the asset earns before it’s paid out to beneficiaries.
  • The interest isn’t reported on the deceased’s tax return.

Beneficiaries are responsible for reporting the IRD on their own returns.

If the deceased would have paid tax on income on amounts from these accounts, they’re also IRD:

  • Inherited IRA
  • Retirement plan
  • Annuity
  • Certain other assets

Ex: Peter dies on April 15 and owns several assets:

  • House he solely owns
  • Cottage he co-owns with his sister Jane
  • Bank accounts payable on death to his sister
  • Mutual-fund account
  • Life insurance policy listing his sister as beneficiary

The income earned from these assets should be reported like this on the deceased’s tax return:

  • On Peter’s return — income earned from his bank accounts and mutual fund until date of death
  • On the estate tax return — income the mutual fund earned after Peter’s death and income from sale of house
  • On Jane’s return (since the assets will bypass probate):
    • Interest earned on bank accounts after Peter’s death
    • Interest on Peter’s life insurance policy after Peter’s death
    • Income on the cottage if Jane sells it

Filing a deceased person’s tax return

The personal representative who files a deceased person’s tax return can be:

  • An executor
  • An administrator
  • Anyone in charge of the deceased family member’s property

If the deceased doesn’t owe taxes but had tax withheld, someone must file a tax return for the deceased to get a refund. If you’re filing for someone who died who’s not your spouse, choose the filing status that best describes their status at the date of death. Whoever files the deceased’s tax return must enter these across the top of the return:

  • The word “Deceased”
  • Deceased person’s name
  • Date of death

If your spouse died, you can file a joint return if:

  • Your spouse died in 2018, and you didn’t remarry in 2018.
  • Your spouse died in 2019 before filing a return for 2018.

Your joint return should show both of these:

  • Your spouse’s income for the year (until the date of death)
  • Your income for all of 2018

Enter “Filing as surviving spouse” in your spouse’s signature area. Then, sign in your own signature area. Someone other than the surviving spouse might be the personal representative. If so, that person must also sign. Also, if your spouse died before 2018 and you have a child, you might be able to file either as head of household or qualifying widow(er). This can save you more money than filing as single.

You can’t e-file if a personal representative (other than the living spouse) has been or will be appointed by the court to represent the deceased for tax return and estate purposes. The IRS doesn’t accept e-filed signatures of court-appointed persons. You also can’t file a married filing jointly tax return with a deceased spouse if you remarried before the end of the year. You can, however, file married filing jointly with your new spouse.

Don’t put the deceased’s Social Security number (SSN) on future returns after the year of death. 

Filing Taxes for a Deceased Dependent

You can claim a deceased family member as a dependent if both of these apply:

  • The deceased lived in your home while alive.
  • The deceased met all the requirements to qualify as a dependent.

Also, the deceased dependent might have qualified you for benefits. If so, you can still claim the benefits in the year your dependent died. To do so:

  • File as head of household or qualifying widow(er)
  • Claim the tax deductions or credits you qualify for

Talk to and H&R Block tax pro if you need any help on e-filing for a deceased taxpayer.

 

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