If you experience a death in the family, there will likely be a number of unpleasant tasks to perform. Because death and taxes are inevitable, one of those typical tasks is to file the decedent’s final federal — and state, if applicable — income tax return.
If you’re the surviving relative of a deceased person, learn the basics of filing an income tax return on behalf of your loved one. And don’t make excuses to put off filing — the estate might incur penalties if you miss the April tax deadline.
Who Files the Return of a Deceased Relative
A dead person can’t file his own final return, but the IRS requires someone to handle it. “A final return can be submitted by the surviving spouse or a personal representative,” said Andrew Oswalt, CPA and tax analyst for TaxAct, a tax preparation software company.
“A personal representative of an estate is an executor, administrator or anyone who is in charge of the decedent’s will to administer the estate and distribute properties. An administrator is usually appointed by the court if no will exists, if no executor was named in the will or if the named executor cannot or will not serve,” Oswalt said.
How to File the Return of a Deceased Relative
If a personal representative prepares a decedent’s tax return, he must write the word “deceased,” the decedent’s name and the date of death across the top of the return — and sign it. If the decedent did not appoint a personal representative, the surviving spouse must sign the return and write “filing as surviving spouse” on it. Sign your name along with your late spouse’s if you’re filing a joint return.
If the decedent is entitled to a federal tax refund, file Form 1310 — Statement of a Person Claiming a Refund Due to Deceased Taxpayer — and indicate a refund is due on the return. Form 1310 isn’t required if a surviving spouse is filing a joint return with the decedent.
Figure Out Income and Deductions Timeframe
To figure out how to file correctly, keep in mind that a decedent’s income is generally counted from Jan. 1 to the day before he died. For example, if your spouse died on April 2, his final tax return would cover the period from Jan. 1 to April 1. One exception to this is medical bills — to claim those as deductible expenses, the estate must pay them within a year of the decedent’s date of death. These medical expenses cannot be included on Form 706, U.S. Estate Tax Return.
How to Handle an Inherited IRA
If you inherit a traditional IRA from someone other than your spouse, you can’t treat the inherited IRA as your own. You must make a trustee-to-trustee transfer to an IRA in the name of the decedent.
Different taxation rules apply to distributions from inherited IRAs if you were married to the decedent. As a late spouse, you have three options when you inherit an IRA:
- Designate yourself as the account owner.
- Designate yourself as the beneficiary.
- Roll it over into a traditional IRA or another qualified plan.
If the decedent invested in a Roth IRA, there are specific rules about distributions, too. Because inheriting an IRA can be tricky tax-wise, consider seeking a professional’s advice regarding your best option.
Prevent Tax Identity Theft of a Deceased Relative
Criminals often try to steal a decedent’s identity. “The risks are real — deceased persons’ identities are stolen every year,” said Oswalt. “Many death records are public and many thieves use that information to their advantage.”
To prevent theft of a decedent’s identity, take the following steps outlined by the IRS:
- Omit personal information from the decedent’s obituary.
- Send the IRS a copy of the death certificate immediately.
- Send copies of the death certificate to the three credit reporting bureaus and request them to put a “deceased alert” on the decedent’s credit report.
- Review the deceased’s credit report for any questionable activity.
Reduce Filing Stress
Filing taxes for deceased relatives and handling other probate obligations can be confusing, time-consuming and unpleasant. Consider enlisting the aid of an accountant or other tax professional to assist you during this stressful period.