Will the government tax your estate when you die, seizing your home and property? – Company press


It might be surprising to learn that the term “death tax” does not appear anywhere in the federal tax code.

Inheritance tax has been a minor but constant source of federal revenue for a century. The tax was initially imposed in 1916 on wealthy families whose assets were previously passed down from generation to generation without being taxed.

Inheritance taxes were later renamed death taxes to conjure up images of grieving farm families and small business owners who were burdened with large tax bills during their time of personal loss. The term was popularized in the 1990s by supporters of tax reform who believed that inheritance and inheritance taxes were unfair and should be repealed.

Property taxes are generally not due

So will the government tax your estate when you die, seizing your house and other property you plan to pass on to your heirs?

Fortunately, most of us don’t have to worry about inheritance (or death) taxes. As of 2020, only estates worth more than the $ 11,580,000 exemption ($ 23 million for married couples) are subject to federal inheritance tax. In addition, the 100% marital deduction generally allows surviving spouses to inherit without paying inheritance tax, regardless of the size of the estate.

There were only about 1,900 taxable estates in the United States in 2018, which is less than 0.1% of those who died that year. In other words, 99.9% of us don’t have to worry about inheritance tax unless the law changes or until 2025, when current rules expire.

Other taxes may be required

Thirteen states impose an inheritance tax, and some have lower exemptions than the IRS. Six states have an inheritance tax. (An inheritance tax is levied on the beneficiaries of an estate.) It is therefore essential to pay attention to the state of residence of the deceased.

While most estates are not subject to inheritance tax, many will still be subject to income tax. If you are responsible for handling the final affairs of a deceased person, you may need to file multiple tax returns on behalf of the deceased person.

Who makes the statements?

The personal representative is the person legally authorized to file statements on behalf of a deceased person. The personal representative can be identified in the will of the deceased as the executor of the estate of the deceased. If a family trust holds the assets of the deceased, the trust document will appoint a trustee. If there is no will or trust, the probate court will appoint an administrator.

If you are the personal representative of the deceased person and you neglect to file a return or file an incomplete or inaccurate return, the IRS may impose penalties and interest. Don’t ignore the deposit requirements.

The final 1040

A deceased’s final individual income tax return (Form 1040) is prepared and filed, usually as when he was alive. All income up to the date of death must be declared and all credits and deductions to which the deceased is entitled can be claimed. Include only income earned between the start of the year and the date of death on the last 1040.

The deadline for filing the Final Form 1040 is the same as for living taxpayers, April 15.

Even though taxes are not due on the final 1040, someone must file an income tax return for the deceased in order to obtain a refund if a refund is due, using IRS Form 1310, Declaration of a Claimant. a refund due to a deceased taxpayer.

If you are signing the deceased’s final income tax return on their behalf, you must complete IRS Form 56, Notice Regarding Fiduciary Relationship, and attach it to Final Form 1040. If the taxpayer is married, the widow or widower can file a claim. joint declaration for the year of death, claiming the full standard deduction and using the joint declaration rates, as long as they have not remarried in the same year. There are several other tax rules for widows and widowers, so it is essential to consult a qualified tax professional.

Form 1041

Income received after the taxpayer’s death, but before the estate’s assets are distributed to the ultimate beneficiaries, is reported on IRS Form 1041, the United States Income Tax Return for Estates and Trusts, if the estate or the trust earned $ 600 or more per year. You may also be required to file an estate state income tax return.

Before filling out Form 1041, you must obtain a tax identification number, or EIN, for the estate.

Do not include on Form 1041 income producing assets that go directly to the surviving spouse or other heirs. For example, property held as Joint Tenants with Right of Survivorship (JTWROS), IRAs and qualified retirement plan accounts that have designated account beneficiaries, and life insurance products paid directly to beneficiaries of Designated police are generally not included on the Form 1041. Consult a tax professional (CPA or lawyer) with experience in trust and estates to prepare the returns.

If you need more information on filing a deceased person’s income, see IRS Publication 559, Survivors, Executors and Administrators in line.

Michelle C. Herting, CPA, ABV, AEP specializes in inheritance tax and business valuations. She has three offices in Southern California and is president of the Riverside County Estate Planning Council.


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