The saying goes “two things in life are certain – death and taxes.” But what happens when a person dies?
Deceased Tax Returns
When a tax payer dies, his or her finances are automatically converted into an estate. This estate is now in charge of filing a tax return which covers the finances. This includes income and distributions to heir and beneficiaries.
A last personal tax return should still be filed for the departed. This last personal tax return for the deceased tax payer is known as Form 1040.
When computing for the income and taxes due for the tax payer who passed away, the cut off is the date of death. All of the income the deceased earned for the year before the date do death goes on his or her personal tax return. All of the income earned after the individual’s death on the other hand is the responsibility of the estate and will then be stated on the estate tax return.
With regards to deductions, there is a silver lining. No matter what time of the year the unfortunate incident happened, the full deduction for the year can be claimed as well as any other expenses that occurred before the death. This means that you do not have to compute for ratios based on the number of months that passed. You will receive the full write-offs for the rest of the year.
The person in charge of the estate is called an executor or a trustee. The designation depends on the type of estate planning. The executor or trustee will be the one to sign the tax return and not that the tax payer is deceased. This will put things in order with the Internal Revenue Service and exclude the estate tax return.