Filing Tax Returns for an Estate Under the Law
An estate remains a taxpayer even after the decedent’s death. An estate’s executor is responsible for filing all applicable tax returns on behalf of the estate. The responsibility falls on the trustee, rather than the executor, if all of the decedent’s property was left in trust, and the estate does not go through probate. However, an executor may need to coordinate with a trustee if there is both a trust and a will. An executor may hire a tax expert using estate funds. This may be especially useful if the tax expert had previously worked with the decedent.
Types of Tax Returns
An executor will most likely need to file federal and state (and local) income tax returns for the year when the decedent died. The executor may also need to file these returns for the previous year if the decedent had not yet filed for that year. If the estate earns a certain amount of additional income after death but before the estate’s assets are distributed, the executor will also be responsible for filing federal and state income tax returns for the estate itself. (These are sometimes called “fiduciary returns.”) Additionally, an executor may need to coordinate with a trustee to file federal and state income tax returns for a trust.
An executor may also need to file a state inheritance tax return if the state imposes such a tax. Only one return is filed, but each beneficiary pays their share of the tax based on the value of what they inherit. If there is no executor, the beneficiaries themselves will be responsible for filing the return. An executor may also need to file one or more federal gift tax returns for certain unreported large gifts. Finally, an executor will need to file a federal estate tax return if the estate is large enough (for 2023, only estates valued over $12.92 million need to file a federal return) and a state estate tax return if a federal estate tax return is filed or the state imposes its own estate tax. Most states do not impose estate tax, but those that do also have their own estate tax exemptions.
Obtaining a Taxpayer ID
Taxpayer ID numbers (also called “EINs”) are used to file an estate’s tax return. EINs may be obtained through the IRS website by using Form SS-4. According to the IRS, mail applications are typically processed and returned in about four or five weeks. An applicant may be able to receive a taxpayer ID sooner by calling the IRS at the number provided in its Form SS-4 instructions. An IRS representative may request that an individual who receives a taxpayer ID over the phone nevertheless complete and mail in Form SS-4, so it may be best to complete the form before calling to have the information ready.
Preparing Individual and Estate Tax Returns
Final individual income tax returns are prepared in generally the same manner as if the decedent were still alive, with Form 1040. However, the IRS provides directions for tax returns prepared by survivors, executors, and administrators. For example, a preparer should indicate that the taxpayer is deceased and the date of death next to their name and at the top of the form. The signatory should also sign the form by indicating their role (“Sam Chung, Executor of the Estate of Sal Chung, Deceased,” or “Sindy Chung, surviving spouse”). The executor should always sign the return if they have been appointed before it is due.
If the decedent is survived by a spouse, the executor may file a joint tax return for the year of the decedent’s death, unless the surviving spouse remarried in the same year. If the surviving spouse remarried in the same year, the executor would file a “married filing separately” return.
If the individual claiming a federal income tax refund is not the surviving spouse, they must attach a copy of the court document declaring them the executor to the return. (They should not attach the will.) If there is no official court authorization, the individual must file IRS Form 1310 with the return. Surviving spouses who mistakenly receive a refund check in both their deceased spouse’s and their own names may have the check reissued by using Form 1310.
Estate income tax returns (Form 1041) are very similar to individual income tax returns, but permissible deductions may differ. The executor must also file a separate Schedule K-1 (Form 1041) for each beneficiary and provide a Schedule K-1 (Form 1041) to each beneficiary by the time that Form 1041 is filed. To allocate income between a decedent’s income tax return and the estate’s income tax return, an executor should not rely upon forms provided by payors, such as W-2s or 1099s, since these payors probably did not switch to paying the estate as soon as the decedent died. The payor will need the estate’s taxpayer ID before it will switch to paying income to the estate. The executor may need to do their own calculations to determine which income is attributable to the decedent and which is attributable to the estate.
Filing Deadlines
Federal and state income tax returns for both the decedent and the estate are generally due on April 15 of the following year. However, an executor may be able to define a different fiscal year for the purpose of filing the estate’s income taxes and avoid filing two returns. This can be useful when probate was open for a year or less but did not fall perfectly in one calendar year. For example, if the probate case began in August 2021 and ended in July 2022, the executor could use the fiscal year of August 2021 to August 2022 and file only one return. This return would be due on the 15th day of the fourth month after the end of the fiscal year.
The tax year for a decedent’s final income tax return ends on the date of death, and the tax year for the estate’s income tax return begins on the date of death and ends no more than 12 months thereafter (at month’s end) or when all property has been transferred to new owners. An estate may have more than one income tax year if all property is not transferred within a year. An estate tax return may not be necessary if all estate property is quickly transferred to its new owner(s).
Federal and state estate tax returns are due nine months after the decedent’s death. State law will dictate when a state income tax return for a trust or a state inheritance tax return is due.
