When a loved one or spouse passes away, your immediate attention is usually directed towards dealing with putting them to rest.  But once that is done and the task of dealing with the person’s affairs begins, an important question typically arises; what do we do about their taxes?  This post will walk you through the process of filing the needed tax returns as well as outline some additional considerations.

Who Must File (Filing Requirements)?
Generally speaking, whether a person has to file a tax return or not is determined by their gross income, age and filing status. However, when a person has passed away, it is generally a good idea to file a tax return even if there is no obligation to do so. Why you may ask? Because this serves as notice to the IRS and other government agencies that this person is no longer alive. This aids them in closing that person’s SSN account so that someone doesn’t fraudulently use it. It also helps other agencies begin the process of notifying beneficiaries of assets that the deceased had or was entitled to (e.g. survivor benefits).

Personal Representative
So who’s job is it to file the last return for a person who has passed away?  Simple, the personal representative!  The personal representative is generally defined as one of either two people; an executor or an administrator.  An executor is named in a decedent’s will to administer the estate and distribute properties as the decedent has directed.  An administrator is usually appointed by the court if no will exists, if no executor was named in the will, or if the executor cannot (or will not) serve.  In general, an executor and an administrator perform the same duties and have the same responsibilities.

After the court has approved the personal representative, you should obtain an employer identification number (EIN) for the estate.  Next, you use Form 56 – Notice Concerning Fiduciary Relationship to notify the Internal Revenue Service that you have been appointed executor of the estate.

Final Return
So once the personal representative has been appointed, one can then move on to filing the actual return.  The first thing to consider is if this is the “final” return or just an interim one.  For example, if a person died on March 24, 2017, but had not yet filed their tax year (TY) 2016 return (i.e. the one due April 15th 2017), then the TY2016 return is not the “final” one.  The TY2017 return that is due April 15th, 2018 is the final return.  From there, one then needs to follow the process listed below for the final return:

  • Name & Address – Write the word “DECEASED,” the decedent’s name, and the date of death across the top of the tax return.  If a joint return is being filed, write the name and address of the decedent and the surviving spouse in the name and address fields.  If a joint return isn’t being filed, write the decedent’s name in the name field and the personal representative’s name and address in the address field.
  • Income To Include – The decedent’s income shown on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death. The method of accounting used by the decedent before death also determines the income included on the final return (i.e. cash basis vs. accrual basis).  The income earned (if any) after the date of death is reported on the tax return of the person’s estate (Form 1041)
  • Third Party Designee – You can check the “Yes” box in the Third Party Designee area on page 2 of Form 1040 to authorize the IRS to discuss the return with a friend, family member, or any other person you choose. This allows the IRS to call the person you identified as the designee to answer any questions that may arise during the processing of the return.
  • Signature – If a personal representative has been appointed, that person must sign the return. If it is a joint return, the surviving spouse must also sign it. If no personal representative has been appointed, the surviving spouse (on a joint return) signs the return and writes in the signature area “Filing as surviving spouse.” If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent’s property must file and sign the return as “personal representative.”

Request For Refund
If the decedent was owed a refund for the return in question, just how does one go about requesting it?  Well, the personal representative would file Form 1310 – Statement of Person Claiming Refund Due a Deceased Taxpayer.  Just keep in mind that  Form 1310 doesn’t need to be filed if you are claiming a refund and you are:

  • A surviving spouse filing an original or amended joint return with the decedent
  • A court-appointed or certified personal representative filing the decedent’s original return and a copy of the court certificate showing your appointment is attached to the return

Additional Things To Keep In Mind

  • A surviving spouse, under certain circumstances, may have to file the returns for the decedent (i.e. if a joint return is being filed).
  • When filing the decedent’s final income tax return, don’t attach the death certificate or other proof of death to the final return.  Instead, keep it for your records and provide it only if requested
  • Generally, deductions for a decedent are handled the same way as for living individuals (i.e. itemized or standard deduction)
  • Similar to the above bullet, the same goes for credits
  • A final can return can be electronically filed by a surviving spouse or the personal representative
  • IRS Publication 559 has additional information should you need further information or assistance