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Decedant Tax Filing Requirements

There are only two sure things in life: death and taxes. The IRS combines the two in the 'Inheritance Tax' or 'Death Tax.' Yes, even the dead must pay taxes, so whatever is left behind can be taxed one last time. There are a few requirements, however, in handling the filing of taxes for a deceased person.

Preliminary Requirements

Whether these preliminary requirements are handled before the death of the taxpayer or after, they must be handled before taxes are to be filed for the decedent's estate. First, the executor or administrator of the estate must be chosen. Typically, this is done as per the decedent's directions in the will.

Second, the executor must use the IRS Form SS-4 to apply for an Employer Identification Number for the decedent's estate. This number must be used to file estate taxes and must be given to any payers of interest and dividends for them to include on the forms they need to file to identify the decedent's estate.

Third, the executor must file income and estate taxes when due. Fourth, he must also make sure that the taxes are paid even if that means disposal of some of the assets of the estate to pay them.

Responsibilities of the Executor

In addition to the preliminary requirements, an executor should file a notice of fiduciary relationship with the IRS. This is done by filing Form 56 after receiving the EIN. While this gives the executor a certain amount of power over the decedent's estate, it also comes with a certain amount of responsibility. For example, if the executor fails to report income earned by the estate or files a false return (more than a 25 percent discrepancy of the gross income reported) the executor becomes legally liable for the taxes on that amount. If the return was skewed by information gained from the decedent, and the executor can prove that he had no knowledge of unpaid taxes, the IRS may release him from his liability.

If the estate is insolvent, i.e., the assets are less than the liabilities and debts, any amounts owed to the United States Government are paid first before assets are sold to take care of other debts. If the executor sold the assets and paid other debts before paying the United States, he is responsible for paying those taxes personally.

Tax Forms that Must be Filed

The executor must ensure that the final 1040 return is filed for the decedent, for this return, the decedent's Social Security number will be used, not the EIN for the estate. The word, "Deceased" must appear at the top of the final 1040 return along with the date of death. On this final return, the executor must check the "Third Party Designee" box. If there is a surviving spouse, he/she may file as a surviving spouse for two years following the death of the decedent.

If the decedent is receiving a tax refund, the executor must file Form 1310 with the 1040 return. This return must include all the income from the last year the decedent lived. This would include income from corporate returns, interest and dividends and self-employment income. If the decedent was part of an active partnership company, a final 1065 form must be filed so that the partnership can reform as a different organization or find a new partner.

Where to report decedent income

The executor must report the decedent's other types of income on different returns. If the estate receives income, the Form 1041 must be filed under the EIN. Income or assets passed through the estate to the beneficiaries must include a Form K-1 for each beneficiary receiving income to claim the flow of income from the estate. Anyone to whom the estate distributes money or property from the estate would not be considered a beneficiary. This may include the wages of employees of the estate that would require the filing of forms 941 for payroll taxes and the 940 for federal unemployment.

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