Does My Estate Have to File Tax Returns After I Die?

An often overlooked component of estate and probate administration is addressing any outstanding tax liabilities of the deceased person. This can be more complicated than you might think. With respect to federal income taxes, your personal representative may need to file two separate returns: one for you as a deceased individual, and one for your estate.

Form 1040 vs. Form 1041

That might sound ridiculous, but as far as the Internal Revenue Service is concerned, you and your estate are separate legal “persons.” In fact, one of the first things your personal representative will do is obtain a separate tax identification number for your estate. This helps to clearly delineate the deceased person from the estate when it comes to filing taxes.

So what taxes are we actually talking about? Well, first there is the regular federal income tax return (Form 1040) for that portion of the calendar year you were still alive. Basically, your estate must still calculate and pay any income tax due up to the moment of your death.

The date of death then starts the taxable year for your estate. Within 12 months of death, the personal representative must file the estate’s income tax return (Form 1041). This return only needs to be filed, however, if the estate received gross income of at least $600, or one of the estate’s beneficiaries is a “nonresident alien.”

You might be wondering, how does the estate earn money after the decedent dies? It’s actually more common than you think. Essentially any income accrued after death is taxable to the estate. This can include interest on bank accounts, accrued salary and employment benefits, and rents from any property owned by the deceased.

Now, in many cases the estate may not end up paying any income tax. In addition to the standard $600 deduction, the personal representative may also deduct any distributions of income to beneficiaries of the estate, as well as many normal expenses associated with the probate or administration of the estate. Some expenses are not deductible, such as funeral costs, which is why you should always work with a qualified Fort Myers estate planning attorney when filing a Form 1041 on behalf of an estate.

Additional Estate Tax Issues

It’s also important to understand that income tax owed by an estate is not the same thing as the “estate tax,” which is a federal levy against the assets of a deceased person. Thanks to recent changes in federal tax law all but a handful of Florida estates will ever be liable for the estate tax. The typical estate is far more likely to deal with income tax liability.

One final note: Even if a deceased person owes no income tax, it is still necessary to file a Form 1040 to ensure any refunds are properly issued. After all, a tax refund is itself an asset belonging to the estate.

If you have any questions or concerns about how tax issues may affect your estate planning, contact the Kuhn Law Firm, P.A., at 239-333-4529 today.