Taxes & Death – When Certainties Meet

Casey McCartyLife EventsLeave a Comment

Founding father Benjamin Franklin is quoted in a 1789 letter as saying, “There are only two certainties in life, death and taxes.” But, what happens when certainties collide? Depending on the taxpayer’s wealth, that answer can range anywhere from not much to quite a lot.

The final return

Sorry to break it to you folks, but dying doesn’t get you out of taxes. Someone will have to file a final 1040 return for you. Previous years’ taxes will have to be filed, too, if the taxpayer did not file them while alive. Tom can help you with this process. The good news is you may deduct any credits and deductions you were entitled to prior to your passing.

If the decedent owes money following any return preparation after their death, submit the payment with the return or see Make a Payment for other payment options, including payment by debit card, credit card or electronic funds transfer. Should payment not be able to be made immediately, you may qualify for a payment plan or installment agreement. Similar to a payment, if the decedent is due a refund of any individual income tax (Form 1040), you may claim that refund using IRS Form 1310.

Estate taxes

With regard to your estate itself, all of your assets become the property of your estate when you die. If those assets are transferred from your estate to your heirs and beneficiaries, that is a taxable transaction. That transfer would be subject to the estate tax. The IRS requires Form 706 to be filed to report these transactions. If your estate generates any form of income after you’ve passed, those gains may require a tax return to be filed. Per the IRS, Form 1041 is required if the estate generates more than $600 in annual gross income.

About your widow

Perhaps the biggest change regarding your widow’s taxes would be their filing status. A widow’s status may change to qualifying widow(er) for the year their spouse died, and may change to qualifying widow(er) or single for the year following their spouse’s death.

To classify as a qualifying widow(er), you must:

  • Be eligible to file a joint return for the year of your spouse’s death.
  • Without remarrying, have a spouse who passed away in the prior two years.
  • Have a child, stepchild or adopted child who qualifies as a dependent.
    • Individuals who would qualify as a dependent except for not meeting the gross income test, joint return test, or that are claimed by another taxpayer as a dependent also qualify for the widow’s dependent status.
  • Have paid over half of the cost of home upkeep for the tax year.

The IRS states as of the 2017 tax year, the standard deductions and tax tables are the same for qualifying widowers as for taxpayers filing married filing joint. This may change for the 2018 tax year. Meeting with Tom can provide assistance with 2018 tax preparation.

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