Age-old wisdom tells us that only two things in life are certain – death and taxes. Well, when it comes to dying in America, you can be certain that when you die, you also have to do your taxes. After all, if you earn money, you must pay taxes on it. And just because you choose to die, does not mean the IRS is going to let you get out of paying your taxes. Obviously there are exceptions that should be discussed with a local New York estate-planning attorney, but as a general rule, an estate must file a final tax return following final administration. There are 3a couple IRS publications that will aid in filing a final estate return.
Publication 17 – Who Should File?
As an initial matter, decedents are considered the same as regular taxpayers in some respects. For one, they only have to file if they meet the basic requirement of income. So an elderly person who has little or no income may not have to file. Publication 17 provides several tables that can assist with this. In 2014, single filers over the age of 65 who made less than $11,700 did not have to file. For married filers who are both over 65, the amount is $22,700.
Publication 559 – Survivors, Executors, and Administrators
Under this publication, the IRS explains that the final estate return should include all income actually received by the decedent while still alive. This means money that is paid to a decedent after death, which was never received during life, simply passes to the estate and is distributed to heirs. Nevertheless, there are a host of exceptions to this rule as well, thus it is very important to consult an attorney or certified public accountant when completing these returns. For single decedents, the personal representative should sign the return, and for decedents who leave a surviving spouse and wish to file jointly, both the surviving spouse and representative should file. The IRS also prefers that the words “DECEASED” or “DECEDENT RETURN” across the top of the decedent’s final 1040. Likewise, an Estate Return Form 1041 should be filed.
Ultimately, just about all employed individuals, and even retired people with income, will file an estate tax return. Provided taxes were properly withheld during life, this often means a tax return being added to the estate. If taxes are owed, your attorney can advise you regarding the order in which you should pay such debts.