Along with the normal duties of collecting assets, paying creditors and distributing the remaining assets of an individual who has died (decedent), it is the duty of the personal representative of a decedent to file a final personal income tax return for the decedent and pay any tax determined. There is a penalty for failure to file a tax return when due. This is the responsibility of the representative, not an agent (i.e., an attorney or accountant).
The personal representative’s first action should be to apply for a federal identification number for the estate as soon as possible. Apply for the identification number using Form SS-4, Application for Employer Identification Number. Furnish this identification number to all payers of income, including interest and dividends. Income earned in the estate after death should be reported using the estate federal identification number, not the decedent’s social security number.
Next, the representative should file Form 56, Notice Concerning Fiduciary Relationship, with the Internal Revenue Service. A personal representative for a decedent’s estate is a fiduciary. Form 56 allows the personal representative to assume the powers, rights, duties and privileges of the decedent and allows the IRS to mail the representative all tax notices concerning the decedent or estate represented.
The representative must file the final tax return (Form 1040) for the year of death and any previous years not filed by the decedent. If an individual dies after the close of the year but before the tax return was filed for that year, the preceding year will not be the final. The year of death will be the final Form 1040 filed.
The decedent’s income included on the final return is determined as if the person were still alive except that the taxable period ends on the date of death. All income received (or constructively received) up to the date of death, such as interest, dividends, self-employment income, partnership or S corporation income, or retirement income, is reported on the final Form 1040. All income received after the date of death is income to the estate and reported on Form 1041, U.S. Income Tax Return for Estates and Trusts.
In addition, show the decedent’s deductible items paid before death on the final Form 1040. You can claim the personal exemption in full on the final income tax return. If you do not itemize deductions on the final return, the full amount of the standard deduction is allowed regardless of the date of death. Medical expenses paid before death by the decedent are fully deductible, subject to their income limit, on the final tax return if deductions are itemized. Medical expenses that were not paid before death are now a liability of the estate and are shown on Form 706, United States Estate (and Generation Skipping Transfer) Tax Return. However, if medical expenses for the decedent are paid out of the estate during the one-year period beginning with the day after death, you may elect to treat all or part of the expenses as paid by the decedent at the time they were incurred.
The final individual income tax return is due at the same time the decedent’s return would have been due had death not occurred. The tax return must be prepared for the year of death regardless of when the death occurred during the year.
Write “DECEASED,” the decedent’s name and the date of death across the top of the tax return.
If a personal representative has been appointed, the representative must sign the return. If it is a joint return, the surviving spouse must also sign it.
Final Notes
- If you are the surviving spouse filing the tax return with the decedent and have no personal representative, write “Filing as surviving spouse” in the area where you sign the return.
- If you are the decedent’s spouse and are due a refund, file only the tax return to claim the refund.
- If you are the personal representative and the return is not a joint return, file the return and attach a certificate that shows your appointment by the court to receive a refund. A power of attorney or copy of the decedent’s Will is not acceptable as evidence of appointment as personal representative.
- If you are not filing a joint return as a surviving spouse and a personal representative has not been appointed, file the return attaching Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer, and proof of death to the return.
For information concerning the filing of the decedent’s final 1040 form, please contact Henssler Financial at 770-429-9166 or experts@henssler.com.
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