One of the most sensitive topics tax professionals must face is helping people handle taxes for family members or loved ones who have passed away.
Family members often wonder if filing taxes for decedents is necessary. The answer is that death doesn’t erase taxes; a tax obligation still stands even if a person passes away. In fact, this is one of the first orders of business to take care of to avoid “surprise” debts that the estate could be responsible for going forward.
If you need to file taxes for someone who has died, you may be wondering where to start. In some cases, you may need to request copies of tax records from the IRS to determine how many years back you’ll need to go when filing taxes on behalf of the deceased. If you are the executor of an estate, you must essentially take on the tax burden as if it’s your own.
But let’s take this one step at a time. First, we’ll explore the path typically followed when filing taxes for a deceased parent or loved one.
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FILING TAXES ON BEHALF OF YOUR DECEASED RELATIVE
Taxes for a recently deceased person should be prepared and filed using generally the same methods required for any taxpayer. This means reporting all income earned up until the day of death. All relevant deductions should also be claimed to reduce the overall tax burden the same way you would for any filing. Here are some basics to know:
You may need to file IRS Form 4506-T: Request for Transcript of Tax Return to obtain tax records of the deceased person.
Form 1040, W-2s for withheld income, and 1099s for untaxed income may be needed.
The decedent’s income will count from January 1 of the year they passed until the day before they passed.
Write “deceased” next to the taxpayer’s name when filling out tax forms.When a person is deceased, the tax deadline is automatically pushed to April 15 (tax day) of the year after the death.
A surviving spouse can still file a joint return for the last year that the deceased was living.
It will be necessary to use Form 1041: U.S. Income Tax Return for Estates and Trusts if the deceased individual is leaving any estate with taxable income. You’ll also need that form for any estate with at least $600 in gross income during the tax year in question.
One issue that family members often come across when attempting to prepare current tax returns for deceased individuals is that unfiled taxes remain from previous years. In this case, it will be necessary to file any unfiled returns on behalf of the deceased. While it may seem odd, it’s important to file tax returns from previous years on behalf of the deceased individual to avoid allowing IRS penalties and interest to accumulate against the estate.
WHAT HAPPENS IF YOUR DECEASED RELATIVE OWES BACK TAXES?
If you discover that your deceased loved one owes money, you’ll need to pay what is owed. If you don’t have the funds immediately available from the estate to do this, you may be able to work out a payment plan with the IRS. Similarly, you may find that the deceased is actually owed refund money. The IRS has a special form called IRS Form 1310: Statement of a Person Claiming Refund Due a Deceased Taxpayer that allows you to claim the refund.
FILING TAXES FOR A DECEASED WITH NO ESTATE
Typically, the executor of an estate is tasked with filing taxes for the deceased. But not everyone passes away with an estate in place. If no executor has been named, tax responsibilities should be handled by a surviving family member. If there is no estate, the tax situation can get a bit tricky. The responsibility to pay owed taxes may fall on your shoulders if you’re the representative of the deceased. To determine what is owed, it may be necessary to contact the IRS to get tax records dating back a few years. Here’s a look at some of the possible taxes that may need to be paid:
Federal taxes
State taxes
Local taxes
Self-employment taxes
Business taxes
How long do you have to worry about taxes owed by the decedent? The IRS Collection Statute Expiration Date (CSED) for all federal taxes is 10 years, even if the person who owed the taxes is no longer living. With that said, each state has its own statute for owed taxes. The expiration date for state taxes ranges from three years to 20 years, and in a handful of states, state tax debts never expire.
It’s also important to know that the IRS can still audit a person who has passed away, although the worry of an audit generally disappears after three years.
DON’T IGNORE TAX DEBT AFTER DEATH
Many families assume that tax obligations evaporate because the person who owed the money is no longer living. Unfortunately, this can set you up for years of pursuit by creditors while penalties pile up. The IRS will not automatically “forgive” a tax debt just because a person is no longer living. If there is an IRS debt after death with no estate, the IRS will take all possible measures to collect that debt before it expires. Expect the IRS to contact beneficiaries of the will to try to recoup tax debts. This often includes children and siblings, and it is also common for both close and distant relatives to hear from the IRS when a debt is pursued. When settling debts on behalf of someone who has passed away, the IRS should be considered the primary creditor above other creditors.
FINAL THOUGHTS ON HANDING TAXES AFTER SOMEONE HAS DIED
None of us like to think about what happens if a deceased person owes taxes. However, this is a reality that can land on your plate if a family member passes away with unsettled IRS debts. Filing taxes after someone has died can be a confusing process, even if you usually handle your own taxes with no issues. In truth, it is one of the most complicated tax situations a person can encounter. This is why bringing in a tax expert is so important for peace of mind.
At Advance Tax Relief, we help people take care of any lingering tax obligations that loved ones may have left behind. Let us help you use the correct IRS forms when filing taxes for someone who has passed away. In addition, we can assist with obtaining tax records to ensure that no unfiled tax returns or lingering debts are going unnoticed by you. If a tax debt is owed, our team can help you explore tax relief options for paying the debt over time in smaller installments. Advance Tax Relief has more than 30 years of experience with IRS issues. If you have any questions about handling taxes after death, contact us today.
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If you think that you may need help filing your 2014, 2015, 2016, 2017, 2018, 2019 & 2020 Form 1040 tax returns or past due tax returns, you may want to partner with a reputable tax relief company who can help you get the max refund and reduce your chances for an IRS AUDIT.
Advance Tax Relief is headquartered in Houston, TX with a branch office in Los Angeles, CA. We help many individuals just like you solve a wide variety of IRS and State tax issues, including penalty waivers, wage garnishments, bank levy, tax audit representation, back tax return preparation, small business form 941 tax issues, the IRS Fresh Start Initiative, Offer In Compromise and much more. Our Top Tax Attorneys, Accountants and Tax Experts are standing by ready to help you resolve or settle your IRS back tax problems.
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