Probate: Estate Tax - Filing Returns

Probate and state and federal tax returns.

Probate and state and federal tax returns.

Probate and Estate Tax Returns If you are the Personal Representative or an estate, you will need to work with an accountant to file the last tax return (1040) for the deceased person whose estate you are administering. This tax return should be filed by April 15th of the year following the death and should be marked at the top Deceased Final Return. You will need to gather and collect the financial records and 1099s that the deceased receives to complete this process. Ideally, you can work with the accountant who handled the deceased’s previous tax returns, but if not the accountant you hire will most likely need a copy of the deceased’s tax return form the previous year and all the regular documents to complete the Final Return.  Its a good idea to start a file right away and then as you come across pertinent documents or as they come in the mail you can place them in the file for the accountant.

As a personal representative you may also have to file an estate tax return (IRS form1041). A deceased person’s estate is a separate legal entity for federal income tax purposes. You will need to acquire a federal identification number for the estate.

There are two different scenarios in which an estate must file a return with the federal government. If the estate is over the federal estate tax exemption amount of $5.43 million for deaths in 2015 the estate must file a return. If the estate does not fall into this category, the personal representative may still have to file a tax return for the estate.

Does the Estate need to file a tax return?

This is a common question that I get from my Probate clients. The Personal Representative must file a federal income tax return (Form 1041) if the estate has either:

  • Gross income for the tax year of $600 or more
  • A beneficiary who is a nonresident alien

What constitutes income in regards to the Estate?

Common examples are rents from real estate, monetary benefits received by the person after death, or interest on an estate bank account.  Your accountant should be able to tell you whether income generated after the person’s death should go on their personal 1040 for that year or be considered estate income, requiring the filing of the federal estate return 1041. It is important to keep accurate records and present these to the accountant for a through review

If the personal representative promptly distributes all the estate assets to the people who inherit them, the estate may not have income, and the personal representative may not need to file an income tax return for it but its a good idea to discuss this with the accountant who prepares the final return to ensure that all income is accounted for.