Filing Taxes for the Deceased – Form 1041 & More
If you have a family member who died during 2018, you might be required to file a return for him or her. 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. This ensures all income the deceased earned is accounted for. On the estate return (Form 1041), report any income the estate received after the date of death. This includes income earned from bank accounts or stock while the estate is in probate. The estate must request its own employer identification number (EIN) to use for filing purposes.
You or a personal representative should let all payers of income know of the death. You should include financial institutions in your notifications. This will ensure you report all income your family member’s estate or heirs earn.
Many assets, like a life insurance policy or a brokerage account, list a beneficiary. If they do, these assets can bypass probate and be paid directly to the beneficiary. Usually, money paid out from assets that do this isn’t taxable. So, interest earned on these assets after the death of your family member is taxable.
Since the asset 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 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
- Certain other assets
Ex: Peter dies on April 15, 2018, 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 Peter’s return — income earned from his bank accounts and mutual fund until date of death
- On the estate 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 return
If a family member dies before filing a return, the spouse or a personal representative might have to file the deceased’s return. A personal representative 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 return to get a refund. Whoever files the 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 tax year earned until the date of death
- Your income for all of 2018
Enter “Filing as surviving spouse” in the area where you sign the return. Someone other than the surviving spouse might be the personal representative. If so, that person must also sign.
You shouldn’t put the deceased’s Social Security number (SSN) on future returns after the year of death.
Death of a 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 certain tax deductions or credits