The tax man always comes calling, even after a person dies. One of an executor’s most important duties is filing tax returns. This means filing two income tax returns: an income tax return for the deceased and an income tax return for the estate.
The deceased’s final income tax return
Filing the deceased’s final income tax return is relatively simple. You follow the same instructions and use the same tax forms you would use if the deceased was still alive. You count all income earned until the date of death and you would claim any credits or deductions the deceased is entitled to.
If the deceased owes taxes, you pay them out of estate assets. If the deceased is due a refund, you submit a claim for it.
The estate’s income tax return
You also have to file an income tax return for the deceased’s estate. This is entirely separate from the deceased’s personal income tax return.
An estate income tax return is similar to a personal income tax return, because it accounts for all income earned and all taxes owed on that income.
What counts as income earned by an estate? It is any income produced from estate assets.
Some of these assets are financial in nature, such as stocks and bonds. If the deceased owned rental property, rents paid are considered income. Even interest from a savings account is considered income.
The estate’s adjusted gross income is figured basically like an individual’s adjusted gross income is, with similar deductions and credits being made available to the estate. Note that the estate may qualify for additional deductions, such as deductions for distributions to estate heirs.
An executor’s duties are many and paying taxes cannot be ignored. Most executors will have to file an estate income tax return in addition to the deceased’s personal income tax return. Filing all necessary tax returns is a very important task for an executor to complete.