After the death of a loved one, the task of filing the final personal tax return and the estate income tax return can become overwhelming. After all, how many times have you had this responsibility? If you are like most of our clients, this is the first time.
Here’s what you need to know:
All of your loved one’s income from January 1st until the date of his or her death goes on the final 1040, which is filed using their Social Security number. Income from the rest of the year goes on the proper estate tax return, using its own tax ID number.
The estate either pays tax on the income shown or it issues the heirs K-1 forms to report their share of the estate’s income. Since the income tax rates on estates are rather high, the K-1 route normally pays off. When filing for a tax ID number, you can select a fiscal year for your loved one’s estate. For example, if the date of death was April 1, 2012, you could select to file the return with a due date of March 31, 2012. That will push your share of the income from the estate onto your next year’s return. Otherwise, plan to pay income tax on this year’s estate income, in addition to your income.
Cruise & Associates is a Nebraska-based accounting firm that specializes in preparing individual final 1040’s, estate, and gift tax returns. You can trust that we will make sure everything is filed correctly.