When someone dies, their tax headache doesn’t die with them.
In fact, these obligations can further complicate survivors’ lives: federal estate taxes may apply, and state inheritance taxes may also come into play.
“In the year of death that you had income, you still need to balance tax liabilities,” said Mark Steber, Jackson Hewitt’s chief tax information officer. “Sooner or later someone has to clean it up, and it usually falls to a family.”
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Melissa Burgess is one of those people. When her father suddenly passed away in early 2018, she filed his return in 2017 while a lawyer helped file his return in 2018 through her father’s estate.
Melissa Burgess, whose father died in 2018This is the final piece of the puzzle for my father’s estate. How do I have to deal with it three years later??
But Burgess, who lives in Buffalo, New York, is still awaiting her father’s 2017 tax refund from the IRS. And the pandemic has made it even more difficult for her and her sister to get in touch with the agency as they have been overwhelmed by massive tax code changes despite sending stimulus checks to millions.
“It was very frustrating,” says 30-year-old Burgess, who works for a local library. “If the pandemic hadn’t happened, things might have been resolved by now.”
In addition to her frustration, the IRS mistakenly sent her late father a $ 1,200 stimulus check last spring that she had to send back, she says.
“This is the final piece of the puzzle for my father’s estate. How do I have to deal with it three years later? This money is owed to my father. I won’t give up until I get it. “
Melissa Burgess in the middle with her sister and father.Melissa Burgess
Filing the final tax return of the deceased taxpayer is usually the responsibility of the executor or administrator of the estate. If neither is named, he will be taken over by a survivor of the deceased, according to Lisa Greene-Lewis, CPA at TurboTax.
“This likely affected many families in 2020 due to the pandemic,” says Greene-Lewis.
Not only are these survivors stressed out over complicated tax papers, but they also mourn.
“The final year of filing a tax return is a tricky subject because you are dealing with emotions and fragile feelings,” says Steber, who says that family members who are suddenly responsible for their loved ones’ taxes should not be able to do it on their own. “When the time comes, get expert help.
The final return will be made on IRS Form 1040, the same that would have been used if the taxpayer were alive. The difference is that “deceased” is written after the taxpayer’s name, Greene-Lewis says.
If the taxpayer was married, the widow or widower can file a joint declaration for the year of death. For the two years following a person’s death, the surviving spouse can file as a qualified widow or widower, which allows them to continue using the same tax brackets that apply to the joint filing of marriages.
Estate taxes.Getty Images
The greater the wealth and the higher the income for a deceased, the more complex the situation likely becomes, creating a greater need for a tax professional, says Steber.
“Make this part of your will and hire an executor,” advises Steber.
Eric Pierre, Founder, CEO and Principal of Pierre AccountingThe pandemic has caught people’s attention. Anyone can die instantly. But now that people are dying from COVID I think it really woke them up about this reality to make sure they had a plan.
For example, inheritance tax is levied on a person’s property when they die. A 40% estate tax applies to estate values that exceed $ 11.7 million or $ 23.4 million per couple, although fewer than 2,000 households will have to pay estate tax for the past year, according to the Tax Policy Center.
The Biden government is expected to propose lower inheritance tax exemptions that would tax more estates after death. Biden has called for the land exemption to be reduced to $ 3.5 million.
Eric Pierre, founder, CEO and principal of Pierre Accounting, says his firm received heightened estate planning this year.
“The pandemic caught people’s attention. Anyone can die instantly. But now that people are dying from COVID, it has really woken them up about this reality to make sure they have a plan. “
The distinction between those who need an estate and those who need a simple will depends on individual circumstances, adds Pierre. For those who own real estate or tangible assets, they should own real estate, he recommends.
The deadline for filing a final tax return is the deadline for filing the tax return for the year following the taxpayer’s death. This would be May 17th for 2020 tax returns after the IRS extended the deadline for that tax season.
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If an executor or administrator is involved, they must sign the return for the deceased. If a joint return is submitted, the spouse must also sign.
In the absence of an executor or administrator, anyone responsible for filing the return should sign the return, making sure that he or she signs “on behalf of the deceased”.
If a joint return is being submitted by the surviving spouse only, he or she should sign the return and write “Submission as surviving spouse” in the field for the other spouse’s signature.
The words Tax Refund written in block letters next to a red mugGETTY IMAGES
There is one more step when a refund is due.
If the deceased is owed the money, it can also be claimed IRS Form 1310, Statement from an individual who, according to Greene-Lewis, is seeking a refund on the basis of a deceased taxpayer.
Although the IRS says surviving spouses filing a joint tax return are not required to file this form, tax experts suggest that it is still a good idea to avoid potential delays.
According to Pierre, the refund will be distributed to heirs or beneficiaries, provided that it is made solely on behalf of the deceased. If the deceased has a surviving spouse, they may be eligible for re-enrollment reimbursement.
Yes, it’s tax season again.Getty Images / iStockphoto
If a deceased owes tax, the tax bill should be paid by the deceased’s estate administrator, says Pierre.
In the event the deceased did not have sufficient funds to cover federal income and estate taxes, loved ones are not responsible for the remaining balance, Pierre adds.
Eric Pierre, Founder, CEO and Principal of Pierre AccountingWhen you are safe and sound, take out life insurance and at least have a simple will.
The executor may be held liable if the executor distributes assets to heirs and beneficiaries before paying taxes, or if the executor pays off other debts of the estate before paying the tax liabilities, or if the manager is aware of insufficient funds and inability to Paying the taxes but spending the wealth differently, he says.
Of course, a relative may be on the hook for any of the following: signing a loan with the deceased if they were a joint account holder; a resident of a jointly owned state where a surviving spouse may be held liable for debts if the state requires the surviving spouse to repay debts; or if they share in the guilt, so Pierre.
“When you’re safe and sound, take out life insurance and at least have a simple will,” says Pierre. “Look at an estate depending on your wealth. If you don’t and something unexpected happens, it could take years to figure out how to settle assets. “
“If you don’t prepare,” adds Pierre, “prepare for failure.”
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Released 4:02 UTC April 22, 2021
Updated 02:32 p.m. UTC April 22, 2021