What is Form 1040?
Individuals file a federal income tax return with the IRS using Form 1040. Form 1040 is used to report an individual’s gross income from all sources over the prior year and calculate either the amount of tax an individual owes or the refund they should receive.
Is Form 1040 Only for the Living?
While most people think about taxes only for the living, it's also crucial to understand that a final tax return must be filed on behalf of the deceased person for the income they generated while they were still alive during the year they died. Even if a person passed away on January 1st, if a certain amount of income was generated (we will get to that in a moment), a tax return must be completed.
As a general rule of thumb, a decedent’s final income tax return for the part of the year they were still alive is prepared and filed the same way one would be prepared for a living person. All income up to the date of death will need to be reported, along with any deductions and/or credits they would have typically claimed. In order to file this claim, Form 1040 would be used to do so. More information about filing instructions can be found here: Form 1040 or 1040-SR Instructions
It is also important to note, that If the decedent has not done so, you may also have to file individual income tax returns for years preceding the year of death.
What About Income Earned After the Deceased’s Date of Death?
The probate and estate administration process can be very slow, as it is dependent on a number of factors, namely the courts appointing the representative of the estate (i.e. the Administrator, Personal Representative, or Executor). Because the federal tax id number (EIN) can only be obtained after the estate representative is formally appointed by the courts (learn how to obtain an estate EIN here), there is often a delay where income is generated before the estate has an EIN and all of the accounts and assets generating income can be officially retitled or transferred to the estate.
It is important, as the advisor for the client, that you give due consideration to the dates that income as generated, pre and post death. Only income generated before and on the date of death should be reported on the decedent’s final Form 1040.
Post-death income should be reported either:
(1) on a Form 1041 for the estate or
(2) on the beneficiary’s return, if it is an asset that is titled to transfer immediately on death.
Note that if the beneficiary is a trust, the post death income of that asset should be reported on the trust’s Form 1041, not the estate’s Form 1041.
In cases where there is a surviving spouse, post-death income of the decedent may also be reportable by the surviving spouse who is filing jointly with the decedent. Depending on the amount of income generated post-death, as well as the surviving spouse’s financial situation, it might be advantageous to report this post-death income to Form 1041 for the estate so that certain expenses incurred after death or because of the death, can be used to deduct or offset the post-death income.
Who Needs to File Form 1040?
Most people in the U.S. will need to file Form 1040 if they are self-employed, work for a company as an employee, or live off of the income from investments. In general, you must file a Form 1040 if you meet a particular threshold given your age, filing status, and gross income. At Trustate, we have created a quick and easy, free tool to calculate the income threshold of an individual based on the specific factors listed above. https://www.trustate.com/products/1040
Where to Find Form 1040?
The IRS offers a downloadable version of Form 1040, which you can find here: Form 1040. Alternatively, you can always use digital tax planning software to assist in filing this form.
If you are filing Form 1040 on your own, on behalf of the deceased, and have additional questions, the IRS has a DIY guide to help you along the way: IRS Free File
Where to Mail Form 1040
Filing a paper return: The address where to send the file will depend on the state in which the income is claimed. Please see the below chart to figure out which Department of Treasury address the Form 1040 you are filing should be mailed to.
E-filing: The IRS recommends that all eligible taxpayers file their returns electronically because it’s easier, more convenient, and more secure than paper filing. You can file electronically using the IRS Free File or using other digital tax preparation services.
Form 1040 Filing Deadline
April 18, 2022. If more time is needed, an extension can be requested.
To see if you, your client, or a decedent needs to file Form 1040, use this link: https://www.trustate.com/products/1040