If you have the important task of wrapping up someone’s final affairs, you may feel most worried about federal taxes. After all, most people feel a little nervous when going up against the IRS. The more complex the individual’s income streams, the more important it is to do due diligence.
The IRS explains that after someone passes away, that individual and the estate become separate entities for tax purposes. To address this, you may need to file multiple returns and forms to satisfy the IRS’s requirements.
Filing income taxes
The IRS asks that you complete a Form 1040 or 1040-SR for the last year of the person’s life. You may also need to file for prior years if the person did not do so and should have done so. Sometimes, the IRS has access to documents that may assist with this process.
Filing the estate’s taxes
The IRS requires the filing of Form 1041. You may need to file the estate’s taxes as long as it generates more than $600 in annual income. To do this, you may need to acquire an EIN, which businesses generally use. You may then complete Form 1041.
Filing estate taxes
Very few estates in America generate estate taxes because of the multi-million-dollar threshold. If the estate meets this threshold, you may need to file Form 706.
As the estate administrator, you also need to determine what counts as taxable. Trust assets and life insurance policies, for instance, may not fit the bill. Generally, the taxable estate involves assets that passed through probate.