Death is, in most cases, an unprecedented eventuality that leaves a lot of unfulfilled responsibilities. Paying of taxes and filing tax returns in this case is the responsibility left unfulfilled. For financially well off individuals, they need an individual that takes up this responsibility which will most likely be someone close to the deceased. In the event that you are the individual in question you need to know what to do and how to do it to avoid the consequences that would otherwise be imposed by the IRS. This article elaborates on this matter to act as a guide for individuals seeking to conveniently settle their loved one’s estate(s) to avoid tax repercussions from the IRS.
Know Your Role
Knowing your role is how you know what you are supposed to do. In this case your title is the executor. The executor is charged with the major responsibility of handling the decedent’s finances. This includes identification of the estate assets of the deceased, paying their obligatory debts, distributing these assets as stipulated in their will and organizing the payment of taxes including the filing of any pending tax returns for the decedent.
The executor is determined in different ways. The first and most common way is through the decedent’s will where the executor is declared. The executor may also be named as a trustee if the assets of the deceased are held within a trust. The probate court also choses an administrator who is the executor in this case and thus performs the financial roles therein.
Perform that Role
Filing the Estate’s Federal Income Tax Return; Form 1041
There may be pending tax returns on the property of the deceased or their estate may still be generating income. In both of these scenarios, the federal tax returns of the decedent should be filed, which is the role that the executor performs.
The executor performs this crucial role by filing the form 1041 which is the United States Income Tax Return for Estates and Trusts. This form is expected by the IRS on the 15th day of the fourth month after the tax year-end. The year-end is any month that results in an initial tax year of twelve months or less immediately after the official date of death of the decedent.
Filing the Estate’s Federal Income Tax Return; Form 706
The federal tax return Form 706 is different from Form 1041 since the former covers United States Estate and Generation Skipping Transfer Tax returns. As of 2018 the federal estate tax value was at $11.18 million while that of a person who dies at 2019 currently stands at 11.4 million. The significant gift thus applies for those of $15,000 for decedent’s gifts in 2018-2019.
The form 706 can also be filed to make a portability election. A portability election allows the executor to transfer the unused unified federal estate and gift tax exemption of the deceased to the surviving spouse if they were married.
Contact an Attorney
If you need help settling a deceased loved one’s taxes, or if you just have tax questions in general, contact the attorneys at Ayar Law for free, no-obligation tax advice 800.571