Filing a Final Income Tax Return After the Death of a Loved One

When someone passes away during the most recent tax year, the person named as executor in the will (or if there is no will, the administrator of the estate appointed by the court) is responsible for filing all necessary income, estate and gift tax returns in the decedent's name.

The executor determines what income was received by the decedent prior to the date of death and that income will need to be reported on a personal income tax return (Form 1040). Write the word “deceased” across the top of this tax return along with the decedent’s name and date of death. This personal return should be filed by the same due date that it would normally be due if the person were still alive.

Any income over $600 received by the decedent after passing away will need to be reported on the tax return for the estate (Form 1041). To begin creating the estate tax return, the executor must first apply for an employer identification number that will be used to reference all tax documents relating to the decedent's estate. The EIN is only used to file a final tax return for the estate of the person who passed away and should not be used to file returns or make payments for any year prior to the year when the person died.

A few finer points to keep in mind:

• The final tax return can include any tax credit the person would have been eligible to receive prior to their passing.
• If you are itemizing deductions keep in mind that only those medical expenses that were paid for while the person was still living can be deducted from the income. The medical expenses that have not been paid become liabilities of the estate and will be outlined on the federal estate return.
• Once the executor files the final return the executor can also fill out Form 5495 (Request for Discharge from Personal Liability) to cut down on personal financial risk. This form notes that the executor will not be responsible for paying any additional taxes levied against the decedent's estate within nine months after this request.

For more information, consult this IRS publication or contact the experienced estate administration attorneys at Stouffer Legal in the greater Baltimore area.