To begin with, the IRS provides advice for people who are “Survivors, Executors, and Administrators” — in other words, people who have a valid interest in settling the financial and tax affairs of the deceased person. Various types of tax are likely to be due on the estate (the combined property, investments, bank accounts, earnings, and other assets owned by the decedent), and the IRS requires those taxes to be paid.
Depending on your official position in administering the deceased person’s estate, you will have certain responsibilities to file tax returns and pay any taxes due. We recommend engaging an accountant who has experience dealing with tax returns and filings for deceased people as they will be able to provide specialized guidance for your unique circumstances.
Personal Representatives of the Deceased and Their Estate
A personal representative of a deceased person’s estate (probate) is an executor, administrator, or anyone in charge of the decedent's property. Executors can be named in wills, and administrators are typically named by a court if the deceased person did not have a will. Administrators have the same duties and responsibilities as executors.
Duties of a Personal Representative
A personal representative has certain responsibilities, including:
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Gathering together and understanding the value of the assets of the deceased person.
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Paying any money owed to creditors out of the estate.
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Distribute remaining assets to heirs or other beneficiaries.
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Helping to manage other affairs under probate.
From a tax perspective, a personal representative also has some other responsibilities:
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Apply for an “Employer Identification Number” (EIN) for the estate — this allows the IRS to identify the estate and its assets and is needed when filing a Form 1041.
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File any and all tax returns due including income taxes, estate taxes, gift taxes, and similar. This typically includes a final Form 1040 (individual income tax return) and a Form 1041 (income tax return for an estate).
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Pay any tax required out of the estate.
Note that if tax returns are not filed and paid on time, a penalty may be levied for late payment or filing.
Applying for an EIN
You can apply for an EIN in writing or online. If you apply online, you can get an EIN immediately. If you apply by mail, it can take up to four weeks to get an EIN. You should use the EIN on any tax forms or correspondence with the IRS relating to the deceased person’s property or estate.
It’s important that you do not use the deceased individual's identifying number (like a Social Security Number) to file an individual income tax return after their final tax return. You should not use a SSN to make estimated tax payments for a tax year after the year of death.
Insolvent Estates
If an estate does not have enough assets to pay all of its debts, the debts due to the U.S. (including taxes) are to be paid first of all.
Form 1040 — Individual Income Tax Return for a Deceased Person
It’s the personal representative's responsibility to file a final income tax return (Form 1040) for the deceased person for the year of death, and any outstanding tax returns for previous years. In some cases, a surviving spouse may need to file the returns.
If a person dies after the close of the tax year but before the return for that tax year was filed (for example, between January and March), the return for the tax year that was just closed won't be the final return. That return will be a regular one filed by the personal representative. The final return will include any taxable transactions and information from the new tax year.
When filing an individual return, you should Write the word “DECEASED,” the decedent's name, and the date of death across the top of the tax return. The final income tax return is due at the same time the person’s return would have been due if they had not died. This means returns are typically due on April 15 following the year of death.
The individual tax return can be filed with the Internal Revenue Service Center for where you live or it can be filed electronically. A personal representative may get an income tax filing extension on behalf of the deceased person if more time is needed to sort out their affairs.
Joint 1040 Returns
Typically, the personal representative and the deceased person’s spouse can file a joint return for the decedent and the surviving spouse. The income of the decedent that was includible on a return up to the date of death and the income of the surviving spouse for the entire year must be included in the final joint return.
Income of a Deceased Person that needs to be Included on a Tax Return
The includible amount of income for the deceased person is calculated as if that person were alive, except that the taxable period is normally shorter as it would end at the person’s date of death.
Form 1099 Interest and Dividend Income
Form(s) 1099 reporting interest and dividends earned before death should be included on the final return. A separate Form 1099 may be needed that shows interest and dividends earned after the date of death. The taxes on these should be paid by the estate.
Partnership Income
The death of a partner closes the partnership's tax year for that partner. Generally, it doesn't close the partnership's tax year for the remaining partners, who should file taxes as normal.
S Corporation Income
If the deceased person was a shareholder in an S corporation, include on the final return their share of the S corporation's items of income, loss, deduction, and credit.
Self-Employment Income
Include self-employment income received or accrued up to the date of death. Self-employment tax may owed if net earnings from self-employment were $400 or more.
Deductions of a Deceased Person Allowable on a Tax Return
Generally, the rules for deductions allowed to living people also apply to the deceased person’s final
income tax return.
Standard Deduction
If you don't itemize deductions on the final return, the full amount of the appropriate standard deduction for the deceased person is allowed, regardless of the date of death.
Medical Expenses
Medical expenses paid before death by the deceased person are deductible if the tax return is itemized, subject to certain limits.
Deduction for Losses
If a deceased person has a net operating loss deduction from a previous year, this can be deducted only on the final income tax return.
Credits and Other Taxes
On the final income tax return, you can claim any tax credits that applied to the person before their death.
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Earned income credit — if the deceased person was an eligible individual, you can claim the earned income credit on the final return even though the return covers fewer than 12 months.
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Credit for the elderly or the disabled — this is allowable on a final income tax return, up to certain limits.
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Child tax credit — if the deceased person had a qualifying child, you may be able to claim the child tax credit on the final return even though the return covers fewer than 12 months.
Armed Forces Members and Victims of Terrorism
Income tax liability may be forgiven for a person who dies due to service in a combat zone, due to military or terrorist actions, or as a result of a terrorist attack.
Speeding Up Processing of the Final Return
The IRS has several pieces of advice to minimize the time needed to process the final return and issue any refund.
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Write “DECEASED,” the deceased person’s name, and the date of death across the top of the tax return.
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A personal representative must sign the return. If it is a joint return, the surviving spouse must also sign it.
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If you are the deceased person’s spouse filing a joint return with the decedent and no personal representative has been appointed, write “Filing as surviving spouse” in the area where you sign the return.
Filing a Form 1041 for the Deceased Person’s Estate
In addition to filing a 1040, a personal representative will also have to file a Form 1041 for the estate of the deceased person. This is a complex area, and we recommend contacting a specialist probate accountant who can guide you through what you need to do.
Typically, an estate must file a separate income tax return if the combined assets of the estate generate more than $600 a year. This income might come from business, interest, dividend, savings account, CD, stock, bond, mutual fund, or rental income. An estate calculates income in a similar way to an individual. Most deductions and credits allowed to individuals are also allowed to estates and trusts. Typically, an estate must pay quarterly estimated income tax in the same manner as individuals.
For large estates with substantial assets, a personal representative may need to file an estate tax return (Form 706). Estate tax is a tax on the transfer of assets from the decedent to their heirs and beneficiaries.
Protect the Deceased Person’s Identity from Theft
Unfortunately, thieves do steal the identities of deceased people. There are steps you can take to reduce this risk:
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Send the IRS a copy of the death certificate. They will mark the account to show the person is deceased.
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Send copies of the death certificate to credit reporting agencies including Experian, Equifax, and TransUnion. They will put a “deceased alert” on the credit report.
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Get a copy of the deceased person’s credit report and review it for unusual activity.
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Do not put too much personally identifiable information in an obituary that could be used to steal an identity.
We realize this is a challenging time, but with a methodical approach and the support of an accountant, you can complete and file the necessary tax returns and fully settle the deceased person’s affairs.
Helpful Information from the IRS
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Deceased Taxpayers – Protecting the Deceased’s Identity from ID Theft
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Deceased Taxpayers – Understanding the General Duties as an Estate Administrator
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Deceased Taxpayers – Filing the Estate Income Tax Return, Form 1041
