What To Do When a Loved One Dies With Unpaid Taxes

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It’s never easy to lose a loved one. Not only are you grieving, you’re making funeral arrangements and handling their affairs. Unfortunately, you might also need to deal with their unpaid taxes.

Just because a family member dies, their taxes don’t go away, and if you ignore their taxes, it can mean penalties, interest charges and even more stress while you’re dealing with a huge loss.

Who’s the Executor?

Whenever anyone dies, someone needs to be in charge of settling their affairs. Usually, this person will be named in the will as the executor. If the deceased didn’t leave a will, the probate court will appoint an administrator. Usually that means a close family member. 

Gather Financial Records and Notify the IRS

If you’re the executor or administrator, you need to obtain certified copies of the death certificate. You’ll need these when you’re dealing with the IRS and other financial institutions. Send the IRS a copy of the death certificate as soon as possible to notify them of the death. This also helps reduce the risk of identity theft using the deceased’s information.

You need to get a picture of the tax situation you’ll be dealing with. So the next step is to gather all of your loved one’s financial records. That means previous tax returns, W-2 forms, 1099 forms, bank statements, investment accounts, retirement accounts, property deeds and any other documents that show income or assets. 

File Tax Returns

You’ll need to submit a final individual income tax return for the year your loved one died. Just like any other tax return, it’s due by April 15 of the next year after their death. If they were married and filing jointly, the surviving spouse should still file a joint return for that final year.

Understand Who’s Responsible

Your loved one’s debt belongs to their estate, not to the surviving relatives. Taxes are paid out of the estate’s assets. This will happen before the heirs get their inheritance, but individual family members themselves aren’t personally responsible for the debt. 

It’s possible that the estate doesn’t have enough cash to pay the taxes owed. If that’s the case, the executor might have to sell some of the estate’s assets to pay for everything. That might mean property or investments will need to be liquidated. If the estate truly doesn’t have the means to pay, the IRS might forgive the remaining debt, depending on the circumstances.

Get Help From a Professional

Tax situations like this can get complex fast. Getting the help of a tax attorney or CPA who specializes in settling estates is a great idea. Usually the cost of hiring a professional is considered a necessary expense, so it’s paid from the estate’s assets, not by you personally. It’s already a difficult and stressful time; the last thing you want to do is add to your woes by making expensive mistakes.

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