Death and Taxes

By Sean Brislin, CPA

When a person dies, their tax responsibilities don’t end with them. The task of managing and filing their final tax returns falls to surviving loved ones or designated representatives. Understanding what needs to be done can help avoid complications and ensure compliance with the IRS and state tax authorities.

This article outlines the general tax filing duties for both the deceased taxpayer and their estate.

Final Return for the Deceased

In the year of death, the deceased is still responsible for paying income taxes on all income earned up to the date of death. A personal representative—usually an executor, surviving spouse, or administrator—is responsible for filing this return.

Who Files the Final Return?

• The executor or court-appointed administrator of the estate.
• If no representative is appointed, the surviving spouse may file a joint return.
• If there’s no surviving spouse or appointed representative, another person in charge of the deceased’s property may file.

What’s Included?

The final Form 1040 covers:

• Income received from January 1 through the date of death.
• Any deductions and credits the taxpayer was eligible for before death.
• Income from jointly held accounts or community property (where applicable).

Key Details:

• Use Form 1040 or 1040-SR for the final return.
• The return is due by April 15 of the following year, unless extended.
• Include the word “Deceased”, the person’s name, and date of death on the return.
• Any refund may require Form 1310 (Statement of Person Claiming Refund Due a Deceased Taxpayer), unless a joint return is filed with a surviving spouse.

Estate Tax Return Responsibilities

If the deceased person left behind significant assets, the estate may also have its own tax obligations. This includes filing an income tax return for the estate and potentially an estate tax return.

1. Income Tax Return for the Estate

When a person dies, their assets become part of their estate. If the estate earns income—such as interest, dividends, or rental income—it must file Form 1041, U.S. Income Tax Return for Estates and Trusts.

Key Points:

• Only required if the estate earns $600 or more in gross income after the date of death.
• The executor or personal representative is responsible for filing.
• A separate Employer Identification Number (EIN) is required for the estate.

2. Federal Estate Tax Return

If the total value of the deceased’s assets exceeds the federal estate tax exemption threshold, a federal estate tax return (Form 706) may be needed.

For 2025, the exemption is $13.61 million per individual (subject to change by Congress or inflation adjustment).

Responsibilities include:

• Filing Form 706 within 9 months of the date of death (an extension is available).
• Reporting all worldwide assets of the deceased.
• Paying any estate tax due.

State-Level Considerations

Some states have their own estate or inheritance taxes, with different thresholds and filing requirements.

• These are separate from federal obligations.
• Executors should check with the relevant state tax agency to determine what’s required.
• Some states also require filing a state-level income tax return for the deceased or the estate.

Summary of Responsibilities

Deceased Taxpayer (Final Return):

• File Form 1040 or 1040-SR for income before death.
• Claim any eligible deductions and credits.
• Pay any taxes due.
• Use Form 1310 if claiming a refund and not filing jointly with a spouse.

Estate:

• Obtain an EIN.
• File Form 1041 if the estate earns $600+ in income after death.
• File Form 706 if the gross estate exceeds the exemption threshold.
• Handle any state-level tax filings.

Conclusion

Handling taxes in the year of death involves more than just filing a final return. It requires careful attention to both the deceased person’s income before death and the estate’s income and value afterward. Executors and family members should consult with a tax professional or attorney to ensure everything is filed correctly and on time.

 

More Resources:

• Ease the Burden on Your Beneficiaries
• When a Loved One Dies
• Family Financial Empowerment