When someone dies, what happens to their income tax reporting and payment obligations?
This is often a huge question mark for so many executors. As the old adage goes, the only thing certain in life are death and taxes, so yes, the deceased’s existing tax reporting & payment obligation shifts to become an obligation of the estate. This means that the legally authorized representative of the estate, i.e., the Executor, Administrator or Personal Representative, is responsible for timely filing the decedent’s income tax returns (as well as for any back-returns that the deceased failed to file during his/her lifetime), and making payments from the estate for any taxes owed.
This can be particularly hard to do when you are tasked with this role and have limited knowledge of the deceased’s finances, accounts, properties and other assets. Also, because the roles change during the lifecycle of an administration, many people find themselves in a position where they are awaiting formal appointment from the probate court, but there is an impending tax deadline. For instance, where people die close to “tax time” or where the courts are unduly slow to issue letters testamentary. In these situations, it can be unclear who should actually be filing, and in what capacity should they be signing the tax return. Luckily, the IRS knows this and has provided specific guidance on this topic for those who have lost someone.
Who should sign the deceased’s income tax return:
Per the IRS’s website, here's who should sign the return:
- Any appointed representative must sign the return. If it's a joint return, the surviving spouse must also sign it.
- If there is no appointed representative, the surviving spouse filing a joint return should sign the return and write in the signature area labeled, filing as surviving spouse.
- If there's no appointed representative and no surviving spouse, the person in charge of the deceased person's property must file and sign the return as "personal representative."
How to sign the deceased’s income tax return
When e-filing, the surviving spouse or representative should follow the directions provided by the tax software in use for the correct signature and notation requirements. For paper returns, the filer should write the word deceased, the deceased person's name and the date of death across the top. Anyone signing should sign their own name, also add “, Personal Representative” after it, or, where formally appointed, their official title (i.e. Executor, Administrator, Personal Representative).
3 Types Income Tax Returns for the Decedent that Need to be Filed (i.e. 1040s):
- Back returns for years where decedent was not compliant.
- The return prior to the year of death (i.e., last year’s taxes), if the deceased died prior to filing.
- A final return, which will be a partial year return in the year of death.
It is important to note that where a decedent did not meet the minimum income threshold for filing, they are NOT required to file (and therefore the estate does not have an obligation to file either).
Though there are different methods of accounting, for most decedents, their final individual return should show only the items of income the decedent actually or constructively received, that were credited to his or her account, or that were made available to him or her without restriction before death. (The only deviation from this would be if the generally accepted cash receipts and disbursements method of accounting is not being used.) Other income would generally be considered income of the estate and should be included on an IRS Form 1041 for the estate.
When a 1041 does/doesn’t need to be filed for the estate, and what should go on it, is a different story, and more information can be found in our article on Estate Income Tax Returns.