You might think the tax man will leave you alone after you die, but your estate still has some unfinished business. After a death, it’s often necessary to file state and/or federal income tax returns: The personal income tax return (Form 1040) covers the last year of the deceased person's life, and a federal estate income tax return (Form 1041) covers the estate.
When are these taxes due?
The same time as for everyone else in America: generally speaking, April 15. The executor is responsible for paying these taxes, which cover the deceased’s final year of life. If the person died close to Tax Day, you may even be able to get an extension, allowing you to get it out of the way sooner rather than later.
What’s the damage?
Since everyone's estate is different, it’s hard to give general advice. If you look at the deceased’s tax return the year before he or she died, you might have some ballpark figure. There are also specific rules for different types of investments or assets, and different ways survivors may choose to report deductions and file a final tax return, but you should consult an accountant or financial professional to know for sure.
Federal taxes are a threshold on which an estate either does or doesn’t have to pay taxes. The federal estate tax rate is at 40% for the year 2017, with an exemption of $5.49 million. This means that if the estate is valued at less than $5.49 million, the estate doesn’t have to pay any federal taxes on those assets, and heirs will receive those assets in their entirety. If the estate is valued at more than $5.49 million, all assets above $5.49 million will be taxed at 40%, meaning that heirs will get the $5.49 million tax-free and will get 60% of all assets above $5.49 million.
That said, the federal estate tax might not be the only tax that needs to be paid. Depending on where you live, or where the deceased lived up until death, there could be an additional estate or inheritance taxes due.
If you already have an accountant or someone who helps prepare your taxes, give them a call since this can be an incredibly complicated, confusing, and frustrating process. If you don’t, ask friends and family for referrals.
If you do your own taxes, this might be the year you enlist help from an actual human for your own sake. If you inherited any of the deceased’s property, your own taxes may be a bit more complicated and require a little extra scrutiny and effort.
Have you ever had to be an executor of an estate? What do you wish you had known? Let us know in the comments below.
This article is provided by Everplans — a life and legacy planning company dedicated to transforming the way people get their families organized. For more information, visit: everplans.com
Neither Transamerica nor its agents or representatives may provide tax, investment, or legal advice. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal advisors and financial professional regarding their particular situation and the concepts presented herein.
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