Taxes and Tax Returns When Someone Dies -- Frequently Asked Questions

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David M. Kaufmann, CPA

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Email: contact2@kaufmann-cpa.com

 

Note: This is a complicated subject. We will only touch on some topics. We recommend that you talk these issues over with an attorney and a CPA.

What taxes might be due after someone dies?
What asset level justifies filing of an estate (death tax) tax return?
What income level justifies filing of a final income tax return?
What income level justifies filing of an estate income tax return?
When is the final income tax return due for someone who has died?

When is the estate income tax return due for someone who has died?

(Note: This discussion will only deal with federal taxes.  There could be state and local taxes required also.  For a discussion of Colorado taxes after someone passes away, click on this link. Reporting of foreign gifts or inheritances.)
 

What taxes might be due after someone dies?

  • Estate (death) taxes are frequently discussed in the media.  Very few estates have to pay estate taxes.  This is a tax on the value of the net assets owned at the date of death.  This tax can get as high as 40%.  If this person has made substantial gifts during his lifetime, the gifts can figure into the tax computation.  This tax is paid by the estate, not beneficiaries.

  • Individual or personal income tax.  This tax would be filed on the frequently discussed Form 1040.  The estate should pay this tax.

  • Estate income tax.  Estate (death) taxes and estate income taxes are two different types of tax!  It is very easy and normal to confuse estate tax with estate income tax.  Estate income tax is tax on the income after a person has died.  Some examples of income would be interest, dividends, gains from sales of stock or real estate.  This tax might be paid by the estate or beneficiaries.  Most estates have to pay or file a estate income tax return(s)

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What asset level justifies filing of an estate (death tax) tax return?

For someone who dies in 2022, the estate tax return is required if the gross estate is more than $12,060,000.  (Indexed for inflation.) Roughly speaking, the gross estate is the value of the state before any reductions for liabilities, such as mortgages.

Life insurance proceeds would be included in the gross estate if the life insurance policy was owned by the person who died.  This has nothing to do with who are the beneficiaries of the life insurance.

Clearly, the typical gross estate is less than $12,060,000.

This filing requirement amount may be a different amount in different years.

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What income level justifies filing of a final income tax return?

In general for 2023:

STATUS AGES FILE IF GROSS INCOME AT LEAST
Single Under 65 $13,850
Single Over 65 $15,700
Married Both under 65 $27,700
Married One spouse over 65 $29,200
Married Both over 65 $30,700

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What income level justifies filing of an estate income tax return?

In 2023, if the gross income is $600 or more, or, if a beneficiary is a nonresident alien, an estate income tax return will need to be filed.  This return is also known as a fiduciary income tax return. Gross income can be confusing. If an estate sells stock or real estate for $100,000 and the cost basis is $100,00, there is no gain or loss, but the gross income is $100,000. In this example, an estate income tax return should be filed or expected nasty correspondence from the IRS.

It is our experience that most of the time beneficiaries end up with tax reducing losses from the estate income tax return. Selling a loved ones home often results in deductible losses for beneficiaries. Savings Bonds and annuities often result in taxable income for beneficiaries.

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When is the final income tax return due for someone who has died?

Simple.  The final individual or personal income tax is due on the same day if the taxpayer had not died.

Thus, if someone dies on January 1, 2022, the final Form 1040 will be due on April 15th, 2023 (Actually, April 17, 2023).

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When is the estate income tax return due for someone who has died?

We have run into quite a few people who get incorrect advice on this!

Lets first answer the question, "When does the first tax year end for an estate?"  The latest that it can end is the latest end of the month such that the tax year does not exceed a year.  Example, if someone dies on June 15, 2022, the latest end of the estate tax year would be May 31, 2023.

There are some complex reasons why one might want to end the year sooner.  Ending the year sooner might result in some tax savings.

The estate (fiduciary) income tax return is due on the 15th day of the 4th month after the end of the year.  If the year ends on December 31, 2022, the due date is April 15, 2023 (April 17, 2023).  If the year ends on January 31, 2022, the due date is May 15, 2022.

For more information, see our Estate Income Tax Due Date page.

Form 1041, U.S. Income Tax Return for Estates and Trusts, is the federal form for estate income taxes.

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The information contained here are simplifications of complex subjects.  Talk to your CPA and attorney if you want to pursue this subject more.

If you have questions about this, do not hesitate to contact us at 720-493-4804.  We serve clients all over the country.  A large portion of my business is preparing tax returns and tax planning for trusts, estates and beneficiaries of trusts and estates.

US Estate Income Tax Return
US Estate Income Tax Return Instructions
Colorado Estate Income Tax Return

IRS Publication 559