What You Need to Know About Filing an Income Tax Return for an Estate

After a loved one dies, you may be named the personal representative of their estate. If you are, it becomes your responsibility to pay the deceased person’s final taxes as well as taxes on their estate. In some cases this may include an income tax return. In today’s blog posts, we’re looking at the basics of how this process works and what you need to know to get started.

Upon death, a person’s assets become property of their estate. If any of those assets are invested, whether it’s in rental property, stocks, bonds, CDs, mutual funds, savings accounts, or elsewhere, they may still be earning a profit even though the person who owned them is gone. Income generated from assets with an estate automatically becomes a part of that estate. That is how it happens that an estate may owe income taxes.

If the estate has only earned a little bit of income — less than $600 in a year — it is exempt from income that. Any more than that, however, and the personal representative of the estate will need to file an IRS Form 1041, which is the U.S. Income Tax Return for Estates and Trusts.

The taxes of the estate cannot be filed under the deceased’s tax ID number or the personal representatives tax ID number. Instead, the personal representative must apply for a new tax ID number on behalf of the estate. This can be done online or your attorney or accountant can help you.

Generally, you will need to calculate what the estate owes in taxes in the same way that you would calculate what an individual owes in taxes, as far as deductions and credits go. There is one deduction, though, that is unique to an estate: the income distribution deduction for distributions to beneficiaries. There will be a place to report this on the 1041 Form.

Who can help?

We understand that this process may be overwhelming, especially while you are mourning the death of someone you hold dear. That’s where the Robertson & Williams, Inc. team comes in. We have extensive experience helping our clients with estate administration. If you are in need of this or any other service we provide, we are eager to speak with you. Contact us today and let’s get started!

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