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Myfreetaxes.com/everett com/everett Publication 559 - Main Content Table of Contents Personal RepresentativeDuties Fees Received by Personal Representatives Final Income Tax Return for Decedent—Form 1040Name, Address, and Signature When and Where To File Filing Requirements Income To Include Exemptions and Deductions Credits, Other Taxes, and Payments Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Filing Reminders Other Tax InformationTax Benefits for Survivors Income in Respect of a Decedent Deductions in Respect of a Decedent Estate Tax Deduction Gifts, Insurance, and Inheritances Other Items of Income Income Tax Return of an Estate— Form 1041Filing Requirements Income To Include Exemption and Deductions Credits, Tax, and Payments Name, Address, and Signature When and Where To File Distributions to BeneficiariesIncome That Must Be Distributed Currently Other Amounts Distributed Discharge of a Legal Obligation Character of Distributions How and When To Report Bequest Termination of Estate Estate and Gift TaxesApplicable Credit Amount Gift Tax Estate Tax Generation-Skipping Transfer Tax Comprehensive ExampleFinal Return for Decedent—Form 1040 Income Tax Return of an Estate—Form 1041 How To Get Tax HelpLow Income Taxpayer Clinics Personal Representative A personal representative of an estate is an executor, administrator, or anyone who is in charge of the decedent's property. Myfreetaxes.com/everett Generally, an executor (or executrix) is named in a decedent's will to administer the estate and distribute properties as the decedent has directed. Myfreetaxes.com/everett An administrator (or administratrix) is usually appointed by the court if no will exists, if no executor was named in the will, or if the named executor cannot or will not serve. Myfreetaxes.com/everett In general, an executor and an administrator perform the same duties and have the same responsibilities. Myfreetaxes.com/everett For estate tax purposes, if there is no executor or administrator appointed, qualified, and acting within the United States, the term “executor” includes anyone in actual or constructive possession of any property of the decedent. Myfreetaxes.com/everett It includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding securities of the decedent as collateral; and the debtors of the decedent who are in this country. Myfreetaxes.com/everett Duties The primary duties of a personal representative are to collect all the decedent's assets, pay his or her creditors, and distribute the remaining assets to the heirs or other beneficiaries. Myfreetaxes.com/everett The personal representative also must perform the following duties. Myfreetaxes.com/everett Apply for an employer identification number (EIN) for the estate. Myfreetaxes.com/everett File all tax returns, including income, estate and gift tax returns, when due. Myfreetaxes.com/everett Pay the tax determined up to the date of discharge from duties. Myfreetaxes.com/everett Other duties of the personal representative in federal tax matters are discussed in other sections of this publication. Myfreetaxes.com/everett If any beneficiary is a nonresident alien, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for information on the personal representative's duties as a withholding agent. Myfreetaxes.com/everett Penalty. Myfreetaxes.com/everett There is a penalty for failure to file a tax return when due unless the failure is due to reasonable cause. Myfreetaxes.com/everett Reliance on an agent (attorney, accountant, etc. Myfreetaxes.com/everett ) is not reasonable cause for late filing. Myfreetaxes.com/everett It is the personal representative's duty to file the returns for the decedent and the estate when due. Myfreetaxes.com/everett Identification number. Myfreetaxes.com/everett The first action you should take if you are the personal representative for the decedent is to apply for an EIN for the estate. Myfreetaxes.com/everett You should apply for this number as soon as possible because you need to enter it on returns, statements, and other documents you file concerning the estate. Myfreetaxes.com/everett You also must give the number to payers of interest and dividends and other payers who must file a return concerning the estate. Myfreetaxes.com/everett You can get an EIN by applying online at www. Myfreetaxes.com/everett irs. Myfreetaxes.com/everett gov (click on "Apply for an EIN Online" under the Tools heading). Myfreetaxes.com/everett Generally, if you apply online, you will receive your EIN immediately upon completing the application. Myfreetaxes.com/everett You can also apply using Form SS-4, Application for Employer Identification Number. Myfreetaxes.com/everett Generally, if you apply by mail, it takes about 4 weeks to get your EIN. Myfreetaxes.com/everett See the form instructions for other ways to apply. Myfreetaxes.com/everett Payers of interest and dividends report amounts on Forms 1099 using the identification number of the person to whom the account is payable. Myfreetaxes.com/everett After a decedent's death, Forms 1099 must reflect the identification number of the estate or beneficiary to whom the amounts are payable. Myfreetaxes.com/everett As the personal representative handling the estate, you must furnish this identification number to the payer. Myfreetaxes.com/everett For example, if interest is payable to the estate, the estate's EIN must be provided to the payer and used to report the interest on Form 1099-INT, Interest Income. Myfreetaxes.com/everett If the interest is payable to a surviving joint owner, the survivor's identification number, such as an SSN or ITIN, must be provided to the payer and used to report the interest. Myfreetaxes.com/everett If the estate or a survivor may receive interest or dividends after you inform the payer of the decedent's death, the payer should give you (or the survivor) a Form W-9, Request for Taxpayer Identification Number and Certification (or a similar substitute form). Myfreetaxes.com/everett Complete this form to inform the payer of the estate's (or if completed by the survivor, the survivor's) identification number and return it to the payer. Myfreetaxes.com/everett Do not use the deceased individual's identifying number to file an individual income tax return after the decedent's final tax return. Myfreetaxes.com/everett Also do not use it to make estimated tax payments for a tax year after the year of death. Myfreetaxes.com/everett Penalty. Myfreetaxes.com/everett If you do not include the EIN or the taxpayer identification number of another person where it is required on a return, statement, or other document, you are liable for a penalty for each failure, unless you can show reasonable cause. Myfreetaxes.com/everett You also are liable for a penalty if you do not give the taxpayer identification number of another person when required on a return, statement, or other document. Myfreetaxes.com/everett Notice of fiduciary relationship. Myfreetaxes.com/everett The term fiduciary means any person acting for another person. Myfreetaxes.com/everett It applies to persons who have positions of trust on behalf of others. Myfreetaxes.com/everett A personal representative for a decedent's estate is a fiduciary. Myfreetaxes.com/everett Form 56. Myfreetaxes.com/everett If you are appointed to act in a fiduciary capacity for another, you must file a written notice with the IRS stating this. Myfreetaxes.com/everett Form 56, Notice Concerning Fiduciary Relationship, is used for this purpose. Myfreetaxes.com/everett See the Instructions for Form 56 for filing requirements and other information. Myfreetaxes.com/everett File Form 56 as soon as all the necessary information (including the EIN) is available. Myfreetaxes.com/everett It notifies the IRS that you, as the fiduciary, are assuming the powers, rights, duties, and privileges of the decedent. Myfreetaxes.com/everett The notice remains in effect until you notify the IRS (by filing another Form 56) that your fiduciary relationship with the estate has terminated. Myfreetaxes.com/everett Termination of fiduciary relationship. Myfreetaxes.com/everett Form 56 should also be filed to notify the IRS if your fiduciary relationship is terminated or when a successor fiduciary is appointed if the estate has not been terminated. Myfreetaxes.com/everett See Form 56 and its instructions for more information. Myfreetaxes.com/everett At the time of termination of the fiduciary relationship, you may want to file Form 4810, Request for Prompt Assessment Under Internal Revenue Code Section 6501(d), and Form 5495, Request for Discharge From Personal Liability Under Internal Revenue Code Section 2204 or 6905, to wind up your duties as fiduciary. Myfreetaxes.com/everett See below for a discussion of these forms. Myfreetaxes.com/everett Request for prompt assessment (charge) of tax. Myfreetaxes.com/everett The IRS ordinarily has 3 years from the date an income tax return is filed, or its due date, whichever is later, to charge any additional tax due. Myfreetaxes.com/everett However, as a personal representative, you may request a prompt assessment of tax after the return has been filed. Myfreetaxes.com/everett This reduces the time for making the assessment to 18 months from the date the written request for prompt assessment was received. Myfreetaxes.com/everett This request can be made for any tax return (except the estate tax return) of the decedent or the decedent's estate. Myfreetaxes.com/everett This may permit a quicker settlement of the tax liability of the estate and an earlier final distribution of the assets to the beneficiaries. Myfreetaxes.com/everett Form 4810. Myfreetaxes.com/everett Form 4810 can be used for making this request. Myfreetaxes.com/everett It must be filed separately from any other document. Myfreetaxes.com/everett As the personal representative for the decedent's estate, you are responsible for any additional taxes that may be due. Myfreetaxes.com/everett You can request prompt assessment of any of the decedent's taxes (other than federal estate taxes) for any years for which the statutory period for assessment is open. Myfreetaxes.com/everett This applies even though the returns were filed before the decedent's death. Myfreetaxes.com/everett Failure to report income. Myfreetaxes.com/everett If you or the decedent failed to report substantial amounts of gross income (more than 25% of the gross income reported on the return) or filed a false or fraudulent return, your request for prompt assessment will not shorten the period during which the IRS may assess the additional tax. Myfreetaxes.com/everett However, such a request may relieve you of personal liability for the tax if you did not have knowledge of the unpaid tax. Myfreetaxes.com/everett Request for discharge from personal liability for tax. Myfreetaxes.com/everett An executor can make a request for discharge from personal liability for a decedent's income, gift, and estate taxes. Myfreetaxes.com/everett The request must be made after the returns for those taxes are filed. Myfreetaxes.com/everett To make the request, file Form 5495. Myfreetaxes.com/everett For this purpose, an executor is an executor or administrator that is appointed, qualified, and acting within the United States. Myfreetaxes.com/everett Within 9 months after receipt of the request, the IRS will notify the executor of the amount of taxes due. Myfreetaxes.com/everett If this amount is paid, the executor will be discharged from personal liability for any future deficiencies. Myfreetaxes.com/everett If the IRS has not notified the executor, he or she will be discharged from personal liability at the end of the 9-month period. Myfreetaxes.com/everett Even if the executor is discharged from personal liability, the IRS will still be able to assess tax deficiencies against the executor to the extent he or she still has any of the decedent's property. Myfreetaxes.com/everett Insolvent estate. Myfreetaxes.com/everett Generally, if a decedent's estate is insufficient to pay all the decedent's debts, the debts due to the United States must be paid first. Myfreetaxes.com/everett Both the decedent's federal income tax liabilities at the time of death and the estate's income tax liability are debts due to the United States. Myfreetaxes.com/everett The personal representative of an insolvent estate is personally responsible for any tax liability of the decedent or of the estate if he or she had notice of such tax obligations or failed to exercise due care in determining if such obligations existed before distribution of the estate's assets and before being discharged from duties. Myfreetaxes.com/everett The extent of such personal responsibility is the amount of any other payments made before paying the debts due to the United States, except where such other debt paid has priority over the debts due to the United States. Myfreetaxes.com/everett Income tax liabilities need not be formally assessed for the personal representative to be liable if he or she was aware or should have been aware of their existence. Myfreetaxes.com/everett Fees Received by Personal Representatives All personal representatives must include fees paid to them from an estate in their gross income. Myfreetaxes.com/everett If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on your Form 1040, line 21. Myfreetaxes.com/everett If you are in the trade or business of being an executor, report fees received from the estate as self-employment income on Schedule C or Schedule C-EZ of your Form 1040. Myfreetaxes.com/everett If the estate operates a trade or business and you, as executor, actively participate in the trade or business while fulfilling your duties, any fees you receive related to the operation of the trade or business must be reported as self-employment income on Schedule C (or Schedule C-EZ) of your Form 1040. Myfreetaxes.com/everett Final Income Tax Return for Decedent—Form 1040 The personal representative (defined earlier) must file the final income tax return (Form 1040) of the decedent for the year of death and any returns not filed for preceding years. Myfreetaxes.com/everett A surviving spouse, under certain circumstances, may have to file the returns for the decedent. Myfreetaxes.com/everett See Joint Return, later. Myfreetaxes.com/everett Return for preceding year. Myfreetaxes.com/everett If an individual died after the close of the tax year, but before the return for that year was filed, the return for the year just closed will not be the final return. Myfreetaxes.com/everett The return for that year will be a regular return and the personal representative must file it. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett Samantha Smith died on March 21, 2013, before filing her 2012 tax return. Myfreetaxes.com/everett Her personal representative must file her 2012 return by April 15, 2013. Myfreetaxes.com/everett Her final tax return covering the period from January 1, 2013, to March 20, 2013, is due April 15, 2014. Myfreetaxes.com/everett Name, Address, and Signature Write the word “DECEASED,” the decedent's name, and the date of death across the top of the tax return. Myfreetaxes.com/everett If filing a joint return, write the name and address of the decedent and the surviving spouse in the name and address fields. Myfreetaxes.com/everett If a joint return is not being filed, write the decedent's name in the name field and the personal representative's name and address in the address field. Myfreetaxes.com/everett Third party designee. Myfreetaxes.com/everett You can check the “Yes” box in the Third Party Designee area on page 2 of the return to authorize the IRS to discuss the return with a friend, family member, or any other person you choose. Myfreetaxes.com/everett This allows the IRS to call the person you identified as the designee to answer any questions that may arise during the processing of the return. Myfreetaxes.com/everett It also allows the designee to perform certain actions. Myfreetaxes.com/everett See the Instructions for Form 1040 for details. Myfreetaxes.com/everett Signature. Myfreetaxes.com/everett If a personal representative has been appointed, that person must sign the return. Myfreetaxes.com/everett If it is a joint return, the surviving spouse must also sign it. Myfreetaxes.com/everett If no personal representative has been appointed, the surviving spouse (on a joint return) signs the return and writes in the signature area “Filing as surviving spouse. Myfreetaxes.com/everett ” If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. Myfreetaxes.com/everett ” Paid preparer. Myfreetaxes.com/everett If you pay someone to prepare, assist in preparing, or review the tax return, that person must sign the return and fill in the other blanks in the Paid Preparer Use Only area of the return. Myfreetaxes.com/everett See the Form 1040 instructions for details. Myfreetaxes.com/everett When and Where To File The final income tax return is due at the same time the decedent's return would have been due had death not occurred. Myfreetaxes.com/everett A final return for a decedent who was a calendar year taxpayer is generally due on April 15 following the year of death, regardless of when during that year death occurred. Myfreetaxes.com/everett However, when the due date falls on a Saturday, Sunday, or legal holiday, the return is filed timely if filed by the next business day. Myfreetaxes.com/everett The tax return must be prepared for the year of death regardless of when during the year death occurred. Myfreetaxes.com/everett Generally, you must file the final income tax return of the decedent with the Internal Revenue Service Center for the place where you live. Myfreetaxes.com/everett A tax return for a decedent can be electronically filed. Myfreetaxes.com/everett A personal representative may also obtain an income tax filing extension on behalf of a decedent. Myfreetaxes.com/everett Filing Requirements The gross income, age, and filing status of a decedent generally determine whether a return must be filed. Myfreetaxes.com/everett Gross income is all income received by an individual from any source in the form of money, goods, property, and services that is not tax-exempt. Myfreetaxes.com/everett It includes gross receipts from self-employment, but if the business involves manufacturing, merchandising, or mining, subtract any cost of goods sold. Myfreetaxes.com/everett In general, filing status depends on whether the decedent was considered single or married at the time of death. Myfreetaxes.com/everett See the income tax return instructions or Publication 501, Exemptions, Standard Deduction, and Filing Information. Myfreetaxes.com/everett Refund A return must be filed to obtain a refund if tax was withheld from salaries, wages, pensions, or annuities, or if estimated tax was paid, even if a return is not otherwise required to be filed. Myfreetaxes.com/everett Also, the decedent may be entitled to other credits that result in a refund. Myfreetaxes.com/everett These advance payments of tax and credits are discussed later under Credits, Other Taxes, and Payments. Myfreetaxes.com/everett Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. Myfreetaxes.com/everett Form 1310 does not have to be filed if you are claiming a refund and you are: A surviving spouse filing an original or amended joint return with the decedent, or A court-appointed or certified personal representative filing the decedent’s original return and a copy of the court certificate showing your appointment is attached to the return. Myfreetaxes.com/everett If the personal representative is filing a claim for refund on Form 1040X, Amended U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett Individual Income Tax Return, or Form 843, Claim for Refund and Request for Abatement, and the court certificate has already been filed with the IRS, attach Form 1310 and write “Certificate Previously Filed” at the bottom of the form. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett Edward Green died before filing his tax return. Myfreetaxes.com/everett You were appointed the personal representative for Edward's estate, and you file his Form 1040 showing a refund due. Myfreetaxes.com/everett You do not need Form 1310 to claim the refund if you attach a copy of the court certificate showing you were appointed the personal representative. Myfreetaxes.com/everett If you are a surviving spouse and you receive a tax refund check in both your name and your deceased spouse's name, you can have the check reissued in your name alone. Myfreetaxes.com/everett Return the joint-name check marked “VOID” to your local IRS office or the service center where you mailed your return, along with a written request for reissuance of the refund check. Myfreetaxes.com/everett A new check will be issued in your name and mailed to you. Myfreetaxes.com/everett Death certificate. Myfreetaxes.com/everett When filing the decedent's final income tax return, do not attach the death certificate or other proof of death to the final return. Myfreetaxes.com/everett Instead, keep it for your records and provide it if requested. Myfreetaxes.com/everett Nonresident Alien If the decedent was a nonresident alien who would have had to file Form 1040NR, U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett Nonresident Alien Income Tax Return, you must file that form for the decedent's final tax year. Myfreetaxes.com/everett See the Instructions for Form 1040NR for the filing requirements, due date, and where to file. Myfreetaxes.com/everett Joint Return Generally, the personal representative and the surviving spouse can file a joint return for the decedent and the surviving spouse. Myfreetaxes.com/everett However, the surviving spouse alone can file the joint return if no personal representative has been appointed before the due date for filing the final joint return for the year of death. Myfreetaxes.com/everett This also applies to the return for the preceding year if the decedent died after the close of the preceding tax year and before filing the return for that year. Myfreetaxes.com/everett The income of the decedent that was includible on his or her return for the year up to the date of death (see Income To Include, later) and the income of the surviving spouse for the entire year must be included in the final joint return. Myfreetaxes.com/everett A final joint return with the decedent cannot be filed if the surviving spouse remarried before the end of the year of the decedent's death. Myfreetaxes.com/everett The filing status of the decedent in this instance is married filing a separate return. Myfreetaxes.com/everett For information about tax benefits to which a surviving spouse may be entitled, see Tax Benefits for Survivors, later, under Other Tax Information. Myfreetaxes.com/everett Personal representative may revoke joint return election. Myfreetaxes.com/everett A court-appointed personal representative may revoke an election to file a joint return previously made by the surviving spouse alone. Myfreetaxes.com/everett This is done by filing a separate return for the decedent within one year from the due date of the return (including any extensions). Myfreetaxes.com/everett The joint return made by the surviving spouse will then be regarded as the separate return of that spouse by excluding the decedent's items and refiguring the tax liability. Myfreetaxes.com/everett Relief from joint liability. Myfreetaxes.com/everett In some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. Myfreetaxes.com/everett If the decedent qualified for this relief while alive, the personal representative can pursue an existing request, or file a request, for relief from joint liability. Myfreetaxes.com/everett For information on requesting this relief, see Publication 971, Innocent Spouse Relief. Myfreetaxes.com/everett Income To Include The decedent's income includible on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death. Myfreetaxes.com/everett The method of accounting regularly used by the decedent before death also determines the income includible on the final return. Myfreetaxes.com/everett This section explains how some types of income are reported on the final return. Myfreetaxes.com/everett For more information about accounting methods, see Publication 538, Accounting Periods and Methods. Myfreetaxes.com/everett Cash Method If the decedent accounted for income under the cash method, only those items actually or constructively received before death are included on the final return. Myfreetaxes.com/everett Constructive receipt of income. Myfreetaxes.com/everett Interest from coupons on the decedent's bonds is constructively received by the decedent if the coupons matured in the decedent's final tax year, but had not been cashed. Myfreetaxes.com/everett Include the interest income on the final return. Myfreetaxes.com/everett Generally, a dividend is considered constructively received if it was available for use by the decedent without restriction. Myfreetaxes.com/everett If the corporation customarily mailed its dividend checks, the dividend was includible when received. Myfreetaxes.com/everett If the individual died between the time the dividend was declared and the time it was received in the mail, the decedent did not constructively receive it before death. Myfreetaxes.com/everett Do not include the dividend in the final return. Myfreetaxes.com/everett Accrual Method Generally, under an accrual method of accounting, income is reported when earned. Myfreetaxes.com/everett If the decedent used an accrual method, only the income items normally accrued before death are included on the final return. Myfreetaxes.com/everett Interest and Dividend Income (Forms 1099) Form(s) 1099 reporting interest and dividends earned by the decedent before death should be received and the amounts included on the decedent's final return. Myfreetaxes.com/everett A separate Form 1099 should show the interest and dividends earned after the date of the decedent's death and paid to the estate or other recipient that must include those amounts on its return. Myfreetaxes.com/everett You can request corrected Forms 1099 if these forms do not properly reflect the right recipient or amounts. Myfreetaxes.com/everett For example, a Form 1099-INT, reporting interest payable to the decedent, may include income that should be reported on the final income tax return of the decedent, as well as income that the estate or other recipient should report, either as income earned after death or as income in respect of the decedent (discussed later). Myfreetaxes.com/everett For income earned after death, you should ask the payer for a Form 1099 that properly identifies the recipient (by name and identification number) and the proper amount. Myfreetaxes.com/everett If that is not possible, or if the form includes an amount that represents income in respect of the decedent, report the interest as shown next under How to report. Myfreetaxes.com/everett See U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett savings bonds acquired from decedent under Income in Respect of a Decedent, later, for information on savings bond interest that may have to be reported on the final return. Myfreetaxes.com/everett How to report. Myfreetaxes.com/everett If you are preparing the decedent's final return and you have received a Form 1099-INT for the decedent that includes amounts belonging to the decedent and to another recipient (the decedent's estate or another beneficiary), report the total interest shown on Form 1099-INT on Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. Myfreetaxes.com/everett Next, enter a subtotal of the interest shown on Forms 1099, and the interest reportable from other sources for which you did not receive Forms 1099. Myfreetaxes.com/everett Then, show any interest (including any interest you receive as a nominee) belonging to another recipient separately and subtract it from the subtotal. Myfreetaxes.com/everett Identify the amount of this adjustment as “Nominee Distribution” or other appropriate designation. Myfreetaxes.com/everett Report dividend income for which you received a Form 1099-DIV, Dividends and Distributions, on the appropriate schedule using the same procedure. Myfreetaxes.com/everett Note. Myfreetaxes.com/everett If the decedent received amounts as a nominee, you must give the actual owner a Form 1099, unless the owner is the decedent's spouse. Myfreetaxes.com/everett See General Instructions for Certain Information Returns (Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G) for more information on filing Forms 1099. Myfreetaxes.com/everett Partnership Income The death of a partner closes the partnership's tax year for that partner. Myfreetaxes.com/everett Generally, it does not close the partnership's tax year for the remaining partners. Myfreetaxes.com/everett The decedent's distributive share of partnership items must be figured as if the partnership's tax year ended on the date the partner died. Myfreetaxes.com/everett To avoid an interim closing of the partnership books, the partners can agree to estimate the decedent's distributive share by prorating the amounts the partner would have included for the entire partnership tax year. Myfreetaxes.com/everett On the decedent's final return, include the decedent's distributive share of partnership items for the following periods. Myfreetaxes.com/everett The partnership's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). Myfreetaxes.com/everett The period, if any, from the end of the partnership's tax year in (1) to the decedent's date of death. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett Mary Smith was a partner in XYZ partnership and reported her income on a tax year ending December 31. Myfreetaxes.com/everett The partnership uses a tax year ending June 30. Myfreetaxes.com/everett Mary died August 31, 2013, and her estate established its tax year through August 31. Myfreetaxes.com/everett The distributive share of partnership items based on the decedent's partnership interest is reported as follows. Myfreetaxes.com/everett Final Return for the Decedent—January 1 through August 31, 2013, includes XYZ partnership items from (a) the partnership tax year ending June 30, 2013, and (b) the partnership tax year beginning July 1, 2013, and ending August 31, 2013 (the date of death). Myfreetaxes.com/everett Income Tax Return of the Estate—September 1, 2013, through August 31, 2014, includes XYZ partnership items for the period September 1, 2013, through June 30, 2014. Myfreetaxes.com/everett S Corporation Income If the decedent was a shareholder in an S corporation, include on the final return the decedent's share of the S corporation's items of income, loss, deduction, and credit for the following periods. Myfreetaxes.com/everett The corporation's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). Myfreetaxes.com/everett The period, if any, from the end of the corporation's tax year in (1) to the decedent's date of death. Myfreetaxes.com/everett Self-Employment Income Include self-employment income actually or constructively received or accrued, depending on the decedent's accounting method. Myfreetaxes.com/everett For self-employment tax purposes only, the decedent's self-employment income will include the decedent's distributive share of a partnership's income or loss through the end of the month in which death occurred. Myfreetaxes.com/everett For this purpose, the partnership's income or loss is considered to be earned ratably over the partnership's tax year. Myfreetaxes.com/everett Community Income If the decedent was married and domiciled in a community property state, half of the income received and half of the expenses paid during the decedent's tax year by either the decedent or spouse may be considered to be the income and expenses of the other. Myfreetaxes.com/everett For more information, see Publication 555, Community Property. Myfreetaxes.com/everett HSA, Archer MSA, or Medicare Advantage MSA The treatment of an HSA (health savings account), an Archer MSA (medical savings account), or a Medicare Advantage MSA at the death of the account holder, depends on who acquires the interest in the account. Myfreetaxes.com/everett If the decedent's estate acquires the interest, the fair market value (FMV) of the assets in the account on the date of death is included in income on the decedent's final return. Myfreetaxes.com/everett The estate tax deduction, discussed later, does not apply to this amount. Myfreetaxes.com/everett If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. Myfreetaxes.com/everett For other information on HSAs, Archer MSAs, or Medicare Advantage MSAs, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Myfreetaxes.com/everett Coverdell Education Savings Account (ESA) Generally, the balance in a Coverdell ESA must be distributed within 30 days after the individual for whom the account was established reaches age 30, or dies, whichever is earlier. Myfreetaxes.com/everett The treatment of the Coverdell ESA at the death of an individual under age 30 depends on who acquires the interest in the account. Myfreetaxes.com/everett If the decedent's estate acquires the interest, the earnings on the account must be included on the final income tax return of the decedent. Myfreetaxes.com/everett The estate tax deduction, discussed later, does not apply to this amount. Myfreetaxes.com/everett If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. Myfreetaxes.com/everett The age 30 limitation does not apply if the individual for whom the account was established or the beneficiary that acquires the account is an individual with special needs. Myfreetaxes.com/everett This includes an individual who, because of a physical, mental, or emotional condition (including a learning disability), requires additional time to complete his or her education. Myfreetaxes.com/everett For more information on Coverdell ESAs, see Publication 970, Tax Benefits for Education. Myfreetaxes.com/everett Accelerated Death Benefits Accelerated death benefits are amounts received under a life insurance contract before the death of the insured individual. Myfreetaxes.com/everett These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider. Myfreetaxes.com/everett Generally, if the decedent received accelerated death benefits on the life of a terminally or chronically ill individual, whether on his or her own life or on the life of another person, those benefits are not included in the decedent's income. Myfreetaxes.com/everett For more information, see the discussion under Gifts, Insurance, and Inheritances under Other Tax Information, later. Myfreetaxes.com/everett Exemptions and Deductions Generally, the rules for exemptions and deductions allowed to an individual also apply to the decedent's final income tax return. Myfreetaxes.com/everett Show on the final return deductible items the decedent paid (or accrued, if the decedent reported deductions on an accrual method) before death. Myfreetaxes.com/everett This section contains a detailed discussion of medical expenses because the tax treatment of the decedent's medical expenses can be different. Myfreetaxes.com/everett See Medical Expenses, later. Myfreetaxes.com/everett Exemptions You can claim the decedent's personal exemption on the final income tax return. Myfreetaxes.com/everett If the decedent was another person's dependent (for example, a parent's), you cannot claim the personal exemption on the decedent's final return. Myfreetaxes.com/everett Standard Deduction If you do not itemize deductions on the final return, the full amount of the appropriate standard deduction is allowed regardless of the date of death. Myfreetaxes.com/everett For information on the appropriate standard deduction, see the Form 1040 income tax return instructions or Publication 501. Myfreetaxes.com/everett Medical Expenses Medical expenses paid before death by the decedent are deductible, subject to limits, on the final income tax return if deductions are itemized. Myfreetaxes.com/everett This includes expenses for the decedent, as well as for the decedent's spouse and dependents. Myfreetaxes.com/everett Beginning in 2013, medical expenses exceeding 10% of adjusted gross income (AGI) may be deducted, unless the decedent or their spouse is age 65 or older. Myfreetaxes.com/everett In that case medical expenses exceeding 7. Myfreetaxes.com/everett 5% of AGI may be deducted. Myfreetaxes.com/everett Qualified medical expenses are not deductible if paid with a tax-free distribution from an HSA or an Archer MSA. Myfreetaxes.com/everett Election for decedent's expenses. Myfreetaxes.com/everett Medical expenses not paid before death are liabilities of the estate and are shown on the federal estate tax return (Form 706). Myfreetaxes.com/everett However, if medical expenses for the decedent are paid out of the estate during the 1-year period beginning with the day after death, you can elect to treat all or part of the expenses as paid by the decedent at the time they were incurred. Myfreetaxes.com/everett If you make the election, you can claim all or part of the expenses on the decedent's income tax return (if deductions are itemized) rather than on the federal estate tax return (Form 706). Myfreetaxes.com/everett You can deduct expenses incurred in the year of death on the final income tax return. Myfreetaxes.com/everett You should file an amended return (Form 1040X) for medical expenses incurred in an earlier year, unless the statutory period for filing a claim for that year has expired. Myfreetaxes.com/everett The amount you can deduct on the income tax return is the amount above 10% of adjusted gross income (or 7. Myfreetaxes.com/everett 5% of adjusted gross income if the decedent or the decedent's spouse was born before January 2, 1949). Myfreetaxes.com/everett Amounts not deductible because of this percentage cannot be claimed on the federal estate tax return. Myfreetaxes.com/everett Making the election. Myfreetaxes.com/everett You make the election by attaching a statement, in duplicate, to the decedent's income tax return or amended return. Myfreetaxes.com/everett The statement must state that you have not claimed the amount as an estate tax deduction, and that the estate waives the right to claim the amount as a deduction. Myfreetaxes.com/everett This election applies only to expenses incurred for the decedent, not to expenses incurred to provide medical care for dependents. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett Richard Brown used the cash method of accounting and filed his income tax return on a calendar year basis. Myfreetaxes.com/everett Richard died on June 1, 2013, at the age of 78, after incurring $800 in medical expenses. Myfreetaxes.com/everett Of that amount, $500 was incurred in 2012 and $300 was incurred in 2013. Myfreetaxes.com/everett Richard itemized his deductions when he filed his 2012 income tax return. Myfreetaxes.com/everett The personal representative of the estate paid the entire $800 liability in August 2013. Myfreetaxes.com/everett The personal representative may file an amended return (Form 1040X) for 2012 claiming the $500 medical expense as a deduction, subject to the 7. Myfreetaxes.com/everett 5% limit. Myfreetaxes.com/everett The $300 of expenses incurred in 2013 can be deducted on the final income tax return if deductions are itemized, subject to the 7. Myfreetaxes.com/everett 5% limit. Myfreetaxes.com/everett The personal representative must file a statement in duplicate with each return stating that these amounts have not been claimed on the federal estate tax return (Form 706), and waiving the right to claim such a deduction on Form 706 in the future. Myfreetaxes.com/everett Medical expenses not paid by estate. Myfreetaxes.com/everett If you paid medical expenses for your deceased spouse or dependent, claim the expenses on your tax return for the year in which you paid them, whether they are paid before or after the decedent's death. Myfreetaxes.com/everett If the decedent was a child of divorced or separated parents, the medical expenses can usually be claimed by both the custodial and noncustodial parent to the extent paid by that parent during the year. Myfreetaxes.com/everett Insurance reimbursements. Myfreetaxes.com/everett Insurance reimbursements of previously deducted medical expenses due a decedent at the time of death and later received by the decedent's estate are includible in the income tax return of the estate (Form 1041) for the year the reimbursements are received. Myfreetaxes.com/everett The reimbursements are also includible in the decedent's gross estate. Myfreetaxes.com/everett No deduction for funeral expenses can be taken on the final Form 1040 of a decedent. Myfreetaxes.com/everett These expenses may be deductible for estate tax purposes on Form 706. Myfreetaxes.com/everett Deduction for Losses A decedent's net operating loss deduction from a prior year and any capital losses (including capital loss carryovers) can be deducted only on the decedent's final income tax return. Myfreetaxes.com/everett A net operating loss on the decedent's final income tax return can be carried back to prior years. Myfreetaxes.com/everett (See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Myfreetaxes.com/everett ) You cannot deduct any unused net operating loss or capital loss on the estate's income tax return. Myfreetaxes.com/everett At-risk loss limits. Myfreetaxes.com/everett Special at-risk rules apply to most activities that are engaged in as a trade or business or for the production of income. Myfreetaxes.com/everett These rules limit the deductible loss to the amount which the individual was considered at-risk in the activity. Myfreetaxes.com/everett An individual generally will be considered at-risk to the extent of the money and the adjusted basis of property that he or she contributed to the activity and certain amounts the individual borrowed for use in the activity. Myfreetaxes.com/everett An individual will be considered at-risk for amounts borrowed only if he or she was personally liable for the repayment or if the amounts borrowed were secured by property other than that used in the activity. Myfreetaxes.com/everett The individual is not considered at-risk for borrowed amounts if the lender has an interest in the activity or if the lender is related to a person who has an interest in the activity. Myfreetaxes.com/everett For more information, see Publication 925, Passive Activity and At-Risk Rules. Myfreetaxes.com/everett Passive activity rules. Myfreetaxes.com/everett A passive activity is any trade or business activity in which the taxpayer does not materially participate. Myfreetaxes.com/everett To determine material participation, see Publication 925. Myfreetaxes.com/everett Rental activities are passive activities regardless of the taxpayer's participation, unless the taxpayer meets certain eligibility requirements. Myfreetaxes.com/everett Individuals, estates, and trusts can offset passive activity losses only against passive activity income. Myfreetaxes.com/everett Passive activity losses or credits not allowed in one tax year can be carried forward to the next year. Myfreetaxes.com/everett If a passive activity interest is transferred because a taxpayer dies, the accumulated unused passive activity losses are allowed as a deduction against the decedent's income in the year of death. Myfreetaxes.com/everett Losses are allowed only to the extent they are greater than the excess of the transferee's (recipient of the interest transferred) basis in the property over the decedent's adjusted basis in the property immediately before death. Myfreetaxes.com/everett The part of the accumulated losses equal to the excess is not allowed as a deduction for any tax year. Myfreetaxes.com/everett Use Form 8582, Passive Activity Loss Limitations, to summarize losses and income from passive activities and to figure the amounts allowed. Myfreetaxes.com/everett For more information, see Publication 925. Myfreetaxes.com/everett Credits, Other Taxes, and Payments Discussed below are some of the tax credits, types of taxes that may be owed, income tax withheld, and estimated tax payments reported on the final return of a decedent. Myfreetaxes.com/everett Credits On the final income tax return, you can claim any tax credits that applied to the decedent before death. Myfreetaxes.com/everett Some of these credits are discussed next. Myfreetaxes.com/everett Earned income credit. Myfreetaxes.com/everett If the decedent was an eligible individual, you can claim the earned income credit on the decedent's final return even though the return covers less than 12 months. Myfreetaxes.com/everett If the allowable credit is more than the tax liability for the year, the excess is refunded. Myfreetaxes.com/everett For more information, see Publication 596, Earned Income Credit (EIC). Myfreetaxes.com/everett Credit for the elderly or the disabled. Myfreetaxes.com/everett This credit is allowable on a decedent's final income tax return if the decedent met both of the following requirements in the year of death. Myfreetaxes.com/everett The decedent: Was a “qualified individual,” and Had income (adjusted gross income (AGI) and nontaxable social security and pensions) less than certain limits. Myfreetaxes.com/everett For details on qualifying for or figuring the credit, see Publication 524, Credit for the Elderly or the Disabled. Myfreetaxes.com/everett Child tax credit. Myfreetaxes.com/everett If the decedent had a qualifying child, you may be able to claim the child tax credit on the decedent's final return even though the return covers less than 12 months. Myfreetaxes.com/everett You may be able to claim the additional child tax credit and get a refund if the credit is more than the decedent's liability. Myfreetaxes.com/everett For more information, see the Instructions for Form 1040. Myfreetaxes.com/everett Adoption credit. Myfreetaxes.com/everett Depending upon when the adoption was finalized, this credit may be taken on a decedent's final income tax return if the decedent: Adopted an eligible child and paid qualified adoption expenses, or Has a carryforward of an adoption credit from a prior year. Myfreetaxes.com/everett Also, if the decedent is survived by a spouse who meets the filing status of qualifying widow(er), unused adoption credit may be carried forward and used following the death of the decedent. Myfreetaxes.com/everett See Form 8839, Qualified Adoption Expenses, and its instructions for more details. Myfreetaxes.com/everett General business tax credit. Myfreetaxes.com/everett The general business credit available to a taxpayer is limited. Myfreetaxes.com/everett Any credit arising in a tax year beginning before 1998 that has not been used up can be carried forward for up to 15 years. Myfreetaxes.com/everett Any unused credit arising in a tax year beginning after 1997 has a 1-year carryback and a 20-year carryforward period. Myfreetaxes.com/everett After the carryforward period, a deduction may be allowed for any unused business credit. Myfreetaxes.com/everett If the taxpayer dies before the end of the carryforward period, the deduction generally is allowed in the year of death. Myfreetaxes.com/everett For more information on the general business credit, see Publication 334, Tax Guide for Small Business. Myfreetaxes.com/everett Other Taxes Taxes other than income tax that may be owed on the final return of a decedent include self-employment tax and alternative minimum tax, which are reported on Form 1040. Myfreetaxes.com/everett Self-employment tax. Myfreetaxes.com/everett Self-employment tax may be owed on the final return if either of the following applied to the decedent in the year of death: Net earnings from self-employment (excluding income described in (2)) were $400 or more; or Wages from services performed as a church employee were $108. Myfreetaxes.com/everett 28 or more. Myfreetaxes.com/everett Alternative minimum tax (AMT). Myfreetaxes.com/everett The tax laws give special treatment to certain types of income and allow special deductions and credits for certain types of expenses. Myfreetaxes.com/everett The alternative minimum tax (AMT) was enacted so taxpayers who benefit from these laws still pay at least a minimum amount of tax. Myfreetaxes.com/everett In general, the AMT is the excess of the tentative minimum tax over the regular tax shown on the return. Myfreetaxes.com/everett Form 6251. Myfreetaxes.com/everett Use Form 6251, Alternative Minimum Tax—Individuals, to determine if this tax applies to the decedent. Myfreetaxes.com/everett See the form instructions for information on when you must attach Form 6251 to Form 1040. Myfreetaxes.com/everett Form 8801. Myfreetaxes.com/everett If the decedent paid AMT in a previous year or had a credit carryforward, the decedent may be eligible for a minimum tax credit. Myfreetaxes.com/everett See Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts. Myfreetaxes.com/everett Payments of Tax The income tax withheld from the decedent's salary, wages, pensions, or annuities, and the amount paid as estimated tax are credits (advance payments of tax) that must be claimed on the final return. Myfreetaxes.com/everett Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Income tax liability may be forgiven for a decedent who dies due to service in a combat zone, due to military or terrorist actions, as a result of a terrorist attack, or while serving in the line of duty as an astronaut. Myfreetaxes.com/everett Combat Zone If a member of the Armed Forces of the United States dies while in active service in a combat zone or from wounds, disease, or injury incurred in a combat zone, the decedent's income tax liability is abated (forgiven) for the entire year in which death occurred and for any prior tax year ending on or after the first day the person served in a combat zone in active service. Myfreetaxes.com/everett For this purpose, a qualified hazardous duty area is treated as a combat zone. Myfreetaxes.com/everett If the tax (including interest, additions to the tax, and additional amounts) for these years has been assessed, the assessment will be forgiven. Myfreetaxes.com/everett If the tax has been collected (regardless of the date of collection), that tax will be credited or refunded. Myfreetaxes.com/everett Any of the decedent's income tax for tax years before those mentioned above that remains unpaid as of the actual (or presumptive) date of death will not be assessed. Myfreetaxes.com/everett If any unpaid tax (including interest, additions to the tax, and additional amounts) has been assessed, this assessment will be forgiven. Myfreetaxes.com/everett Also, if any tax was collected after the date of death, that amount will be credited or refunded. Myfreetaxes.com/everett The date of death of a member of the Armed Forces reported as missing in action or as a prisoner of war is the date his or her name is removed from missing status for military pay purposes. Myfreetaxes.com/everett This is true even if death actually occurred earlier. Myfreetaxes.com/everett For other tax information for members of the Armed Forces, see Publication 3, Armed Forces' Tax Guide. Myfreetaxes.com/everett Military or Terrorist Actions The decedent's income tax liability is forgiven if, at death, he or she was a military or civilian employee of the United States who died because of wounds or injury incurred: While a U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett employee, and In a military or terrorist action. Myfreetaxes.com/everett The forgiveness applies to the tax year in which death occurred and for any earlier tax year, beginning with the year before the year in which the wounds or injury occurred. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett The income tax liability of a civilian employee of the United States who died in 2013 because of wounds incurred while a U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett employee in a terrorist attack that occurred in 2008 will be forgiven for 2013 and for all prior tax years in the period 2007 through 2012. Myfreetaxes.com/everett Refunds are allowed for the tax years for which the period for filing a claim for refund has not ended, as discussed later. Myfreetaxes.com/everett Military or terrorist action defined. Myfreetaxes.com/everett A military or terrorist action means the following. Myfreetaxes.com/everett Any terrorist activity that most of the evidence indicates was directed against the United States or any of its allies. Myfreetaxes.com/everett Any military action involving the U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett Armed Forces and resulting from violence or aggression against the United States or any of its allies, or the threat of such violence or aggression. Myfreetaxes.com/everett Terrorist activity includes criminal offenses intended to coerce, intimidate, or retaliate against the government or civilian population. Myfreetaxes.com/everett Military action does not include training exercises. Myfreetaxes.com/everett Any multinational force in which the United States is participating is treated as an ally of the United States. Myfreetaxes.com/everett Determining if a terrorist activity or military action has occurred. Myfreetaxes.com/everett You may rely on published guidance from the IRS to determine if a particular event is considered a terrorist activity or military action. Myfreetaxes.com/everett Specified Terrorist Victim The Victims of Terrorism Tax Relief Act of 2001 (the Act) provides tax relief for those injured or killed as a result of terrorist attacks, certain survivors of those killed as a result of terrorist attacks, and others who were affected by terrorist attacks. Myfreetaxes.com/everett Under the Act, the federal income tax liability of those killed in the following attacks (specified terrorist victim) is forgiven for certain tax years. Myfreetaxes.com/everett The April 19, 1995, terrorist attack on the Alfred P. Myfreetaxes.com/everett Murrah Federal Building (Oklahoma City). Myfreetaxes.com/everett The September 11, 2001, terrorist attacks. Myfreetaxes.com/everett The terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002. Myfreetaxes.com/everett The Act also exempts from federal income tax the following types of income. Myfreetaxes.com/everett Qualified disaster relief payments made after September 10, 2001, to cover personal, family, living, or funeral expenses incurred because of a terrorist attack. Myfreetaxes.com/everett Certain disability payments received in tax years ending after September 10, 2001, for injuries sustained in a terrorist attack. Myfreetaxes.com/everett Certain death benefits paid by an employer to the survivor of an employee because the employee died as a result of a terrorist attack. Myfreetaxes.com/everett Payments from the September 11th Victim Compensation Fund 2001. Myfreetaxes.com/everett The Act also reduces the estate tax of individuals who die as a result of a terrorist attack. Myfreetaxes.com/everett See Publication 3920, Tax Relief for Victims of Terrorist Attacks, for more information. Myfreetaxes.com/everett Astronauts Legislation extended the tax relief available under the Victims of Terrorism Tax Relief Act of 2001 (the Act) to astronauts who died in the line of duty after December 31, 2002. Myfreetaxes.com/everett The decedent's income tax liability is forgiven for the tax year in which death occurs, and for the tax year prior to death. Myfreetaxes.com/everett For information on death benefit payments and the reduction of federal estate taxes, see Publication 3920. Myfreetaxes.com/everett However, the discussions in that publication under Death Benefits and Estate Tax Reduction should be modified for astronauts (for example, by using the date of death of the astronaut instead of September 11, 2001). Myfreetaxes.com/everett For more information on the Act, see Publication 3920. Myfreetaxes.com/everett Claim for Credit or Refund If any of these tax-forgiveness situations applies to a prior year tax, any tax paid for which the period for filing a claim has not ended will be credited or refunded. Myfreetaxes.com/everett If any tax is still due, it will be canceled. Myfreetaxes.com/everett The normal period for filing a claim for credit or refund is 3 years after the return was filed or 2 years after the tax was paid, whichever is later. Myfreetaxes.com/everett If death occurred in a combat zone or from wounds, disease, or injury incurred in a combat zone, the period for filing the claim is extended by: The amount of time served in the combat zone (including any period in which the individual was in missing status), plus The period of continuous qualified hospitalization for injury from service in the combat zone, if any, plus The next 180 days. Myfreetaxes.com/everett Qualified hospitalization means any hospitalization outside the United States and any hospitalization in the United States of not more than 5 years. Myfreetaxes.com/everett This extended period for filing the claim also applies to a member of the Armed Forces who was deployed outside the United States in a designated contingency operation. Myfreetaxes.com/everett Filing a claim. Myfreetaxes.com/everett Use the following procedures to file a claim. Myfreetaxes.com/everett If a U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett individual income tax return (Form 1040, 1040A, or 1040EZ) has not been filed, you should make a claim for refund of any withheld income tax or estimated tax payments by filing Form 1040. Myfreetaxes.com/everett Form W-2, Wage and Tax Statement, must accompany all returns. Myfreetaxes.com/everett If a U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett individual income tax return has been filed, you should make a claim for refund by filing Form 1040X. Myfreetaxes.com/everett You must file a separate Form 1040X for each year in question. Myfreetaxes.com/everett You must file these returns and claims at the following address for regular mail (U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett Postal Service). Myfreetaxes.com/everett Internal Revenue Service 333 W. Myfreetaxes.com/everett Pershing, P5–6503 Kansas City, MO 64108 Identify all returns and claims for refund by writing “Iraq—KIA,” “Enduring Freedom—KIA,” “Kosovo Operation—KIA,” “Desert Storm—KIA,” or “Former Yugoslavia—KIA” in bold letters on the top of page 1 of the return or claim. Myfreetaxes.com/everett On the applicable return, write the same phrase on the line for total tax. Myfreetaxes.com/everett If the individual was killed in a terrorist or military action, put “KITA” on the front of the return and on the line for total tax. Myfreetaxes.com/everett Include an attachment showing the computation of the decedent's tax liability and a computation of the amount to be forgiven. Myfreetaxes.com/everett On joint returns, make an allocation of the tax as described below under Joint returns. Myfreetaxes.com/everett If you cannot make a proper allocation, attach a statement of all income and deductions allocable to each spouse and the IRS will make the proper allocation. Myfreetaxes.com/everett You must attach Form 1310 to all returns and claims for refund. Myfreetaxes.com/everett However, for exceptions to filing Form 1310, see Form 1310. Myfreetaxes.com/everett Statement of Person Claiming Refund Due a Deceased Taxpayer, under Refund, earlier. Myfreetaxes.com/everett You must also attach proof of death that includes a statement that the individual was a U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett employee on the date of injury and on the date of death and died as the result of a military or terrorist action. Myfreetaxes.com/everett For military and civilian employees of the Department of Defense, attach DD Form 1300, Report of Casualty. Myfreetaxes.com/everett For other U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett civilian employees killed in the United States, attach a death certificate and a certification (letter) from the federal employer. Myfreetaxes.com/everett For other U. Myfreetaxes.com/everett S. Myfreetaxes.com/everett civilian employees killed overseas, attach a certification from the Department of State. Myfreetaxes.com/everett If you do not have enough tax information to file a timely claim for refund, you can suspend the period for filing a claim by filing Form 1040X. Myfreetaxes.com/everett Attach Form 1310, any required documentation currently available, and a statement that you will file an amended claim as soon as you have the required tax information. Myfreetaxes.com/everett Joint returns. Myfreetaxes.com/everett If a joint return was filed, only the decedent's part of the income tax liability is eligible for forgiveness. Myfreetaxes.com/everett Determine the decedent's tax liability as follows. Myfreetaxes.com/everett Figure the income tax for which the decedent would have been liable if a separate return had been filed. Myfreetaxes.com/everett Figure the income tax for which the spouse would have been liable if a separate return had been filed. Myfreetaxes.com/everett Multiply the joint tax liability by a fraction. Myfreetaxes.com/everett The numerator of the fraction is the amount in (1), above. Myfreetaxes.com/everett The denominator of the fraction is the total of (1) and (2). Myfreetaxes.com/everett The resulting amount from (3) above is the decedent's tax liability eligible for forgiveness. Myfreetaxes.com/everett Filing Reminders To minimize the time needed to process the decedent's final return and issue any refund, be sure to follow these procedures. Myfreetaxes.com/everett Write “DECEASED,” the decedent's name, and the date of death across the top of the tax return. Myfreetaxes.com/everett If a personal representative has been appointed, the personal representative must sign the return. Myfreetaxes.com/everett If it is a joint return, the surviving spouse must also sign it. Myfreetaxes.com/everett If you are the decedent's spouse filing a joint return with the decedent and no personal representative has been appointed, write “Filing as surviving spouse” in the area where you sign the return. Myfreetaxes.com/everett If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. Myfreetaxes.com/everett ” To claim a refund for the decedent, do the following. Myfreetaxes.com/everett If you are the decedent's spouse filing a joint return with the decedent, file only the tax return to claim the refund. Myfreetaxes.com/everett If you are the personal representative and the return is not a joint return filed with the decedent's surviving spouse, file the return and attach a copy of the certificate that shows your appointment by the court. Myfreetaxes.com/everett (A power of attorney or a copy of the decedent's will is not acceptable evidence of your appointment as the personal representative. Myfreetaxes.com/everett ) If you are filing an amended return, attach Form 1310 and a copy of the certificate of appointment (or, if you have already sent the certificate of appointment to IRS, write “Certificate Previously Filed” at the bottom of Form 1310). Myfreetaxes.com/everett If you are not filing a joint return as the surviving spouse and a personal representative has not been appointed, file the return and attach Form 1310. Myfreetaxes.com/everett Other Tax Information Discussed below is information about the effect of an individual's death on the income tax liability of the survivors (including widows and widowers), the beneficiaries, and the estate. Myfreetaxes.com/everett Tax Benefits for Survivors Survivors can qualify for certain benefits when filing their own income tax returns. Myfreetaxes.com/everett Joint return by surviving spouse. Myfreetaxes.com/everett A surviving spouse can file a joint return for the year of death and may qualify for special tax rates for the following 2 years, as explained under Qualifying widows and widowers, later. Myfreetaxes.com/everett Decedent as your dependent. Myfreetaxes.com/everett If the decedent qualified as your dependent for a part of the year before death, you can claim the exemption for the dependent on your tax return, regardless of when death occurred during the year. Myfreetaxes.com/everett If the decedent was your qualifying child, you may be able to claim the child tax credit or the earned income credit. Myfreetaxes.com/everett To determine if you qualify for the child tax credit, see the instructions for Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48. Myfreetaxes.com/everett To determine if you qualify for the earned income credit, see the instructions for Form 1040, lines 64a and 64b or Form 1040A, lines 38a and 38b. Myfreetaxes.com/everett Qualifying widows and widowers. Myfreetaxes.com/everett If your spouse died within the 2 tax years preceding the year for which your return is being filed, you may be eligible to claim the filing status of qualifying widow(er) with dependent child and qualify to use the married-filing-jointly tax rates. Myfreetaxes.com/everett Requirements. Myfreetaxes.com/everett Generally, you qualify for this special benefit if you meet all of the following requirements. Myfreetaxes.com/everett You were entitled to file a joint return with your spouse for the year of death—whether or not you actually filed jointly. Myfreetaxes.com/everett You did not remarry before the end of the current tax year. Myfreetaxes.com/everett You have a child, stepchild, or foster child who qualifies as your dependent for the tax year. Myfreetaxes.com/everett You provide more than half the cost of maintaining your home, which is the principal residence of that child for the entire year except for temporary absences. Myfreetaxes.com/everett Example. Myfreetaxes.com/everett William Burns' wife died in 2010. Myfreetaxes.com/everett William has not remarried and continued throughout 2011 and 2012 to maintain a home for himself and his dependent child. Myfreetaxes.com/everett For 2010, he was entitled to file a joint return for himself and his deceased wife. Myfreetaxes.com/everett For 2011 and 2012, he qualifies to file as a qualifying widower with dependent child. Myfreetaxes.com/everett For later years, he may qualify to file as a head of household. Myfreetaxes.com/everett Figuring your tax. Myfreetaxes.com/everett Check the box on line 5 (Form 1040 or 1040A) under Filing Status on your tax return. Myfreetaxes.com/everett Use the Tax Rate Schedule or the column in the Tax Table for Married filing jointly, which gives you the split-income benefits. Myfreetaxes.com/everett The last year you can file jointly with, or claim an exemption for, your deceased spouse is the year of death. Myfreetaxes.com/everett Joint return filing rules. Myfreetaxes.com/everett If you are the surviving spouse and a personal representative is handling the estate for the decedent, you should coordinate filing your return for the year of death with this personal representative. Myfreetaxes.com/everett See Joint Return under Final Income Tax Return for Decedent—Form 1040, earlier. Myfreetaxes.com/everett Income in Respect of a Decedent All income the decedent would have received had death not occurred that was not properly includible on the final return, discussed earlier, is income in respect of a decedent. Myfreetaxes.com/everett If the decedent is a specified terrorist victim (see Specified Terrorist Victim, earlier), income received after the date of death and before the end of the decedent's tax year (determined without regard to death) is excluded from the recipient's gross income. Myfreetaxes.com/everett This exclusion does not apply to certain income. Myfreetaxes.com/everett For more information, see Publication 3920. Myfreetaxes.com/everett How To Report Income in respect of a decedent must be included in the income of one of the following. Myfreetaxes.com/everett The decedent's estate, if the estate receives it. Myfreetaxes.com/everett The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it. Myfreetaxes.com/everett Any person to whom the estate properly distributes the right to receive it. Myfreetaxes.com/everett If you have to include income in respect of a decedent in your gross income and an estate tax return (Form 706) was filed for the decedent, you may be able to claim a deduction for the estate tax paid on that income. Myfreetaxes.com/everett See Estate Tax Deduction, later. Myfreetaxes.com/everett Example 1. Myfreetaxes.com/everett Frank Johnson owned and operated an apple orchard. Myfreetaxes.com/everett He used the cash method of accounting. Myfreetaxes.com/everett He sold and delivered 1,000 bushels of apples to a canning factory for $2,000, but did not receive payment before his death. Myfreetaxes.com/everett The proceeds from the sale are income in respect of a decedent. Myfreetaxes.com/everett When the estate was settled, payment had not been made and the estate transferred the right to the payment to his widow. Myfreetaxes.com/everett When Frank's widow collects the $2,000, she must include that amount in her return. Myfreetaxes.com/everett It is not reported on the final return of the decedent or on the return of the estate. Myfreetaxes.com/everett Example 2. Myfreetaxes.com/everett Assume the same facts as in Example 1, except that Frank used the accrual method of accounting. Myfreetaxes.com/everett The amount accrued from the sale of the apples would be included on his final return. Myfreetaxes.com/everett Neither the estate nor the widow would realize income in respect of a decedent when the money is later paid. Myfreetaxes.com/everett Example 3. Myfreetaxes.com/everett On February 1, George High, a cash method taxpayer, sold his tractor for $3,000, payable March 1 of the same year. Myfreetaxes.com/everett His adjusted basis in the tractor was $2,000. Myfreetaxes.com/everett George died on February 15, before receiving payment. Myfreetaxes.com/everett The gain to be reported as income in respect of a decedent is the $1,000 difference between the decedent's basis in the property and the sale proceeds. Myfreetaxes.com/everett In other words, the income in respect of a decedent is the gain the decedent would have realized had he lived. Myfreetaxes.com/everett Example 4. Myfreetaxes.com/everett Cathy O'Neil was entitled to a large salary payment at the date of her death. Myfreetaxes.com/everett The amount was to be paid in five annual installments. Myfreetaxes.com/everett The estate, after collecting two installments, distributed the right to the remaining installments to you, the beneficiary. Myfreetaxes.com/everett The payments are income in respect of a decedent. Myfreetaxes.com/everett None of the payments were includible on Cathy's final return. Myfreetaxes.com/everett The estate must include in its income the two installments it received, and you must include in your income each of the three installments as you receive them. Myfreetaxes.com/everett Example 5. Myfreetaxes.com/everett You inherited the right to receive renewal commissions on life insurance sold by your father before his death. Myfreetaxes.com/everett You inherited the right from your mother, who acquired it by bequest from your father. Myfreetaxes.com/everett Your mother died before she received all the commissions she had the right to receive, so you received the rest. Myfreetaxes.com/everett The commissions are income in respect of a decedent. Myfreetaxes.com/everett None of these commissions were includible in your father's final return. Myfreetaxes.com/everett The commissions received by your mother were included in her income. Myfreetaxes.com/everett The commissions you received are not includible in your mother's income, even on her final return. Myfreetaxes.com/everett You must include them in your income. Myfreetaxes.com/everett Character of income. Myfreetaxes.com/everett The character of the income you receive in respect of a decedent remains the same as it would have been to the decedent if he or she were alive. Myfreetaxes.com/everett If the income would have been a capital gain to the decedent, it will be a capital gain to you. Myfreetaxes.com/everett Transfer of right to income. Myfreetaxes.com/everett If you transfer your right to income in respect of a decedent, you must include in your income the greater of: The amount you receive for the right, or The fair market value of the right you transfer. Myfreetaxes.com/everett If you make a gift of such a right, you must include in your income the fair market value of the right at the time of the gift. Myfreetaxes.com/everett If the right to income from an installment obligation is transferred, the amount you must include in income is reduced by the basis of the obligation. Myfreetaxes.com/everett See Installment obligations, later. Myfreetaxes.com/everett Transfer defined. Myfreetaxes.com/everett A transfer for this purpose includes a sale, exchange, or other disposition, the satisfaction of an installment obligation at other than face value, or the cancellation of an installment obligation. Myfreetaxes.com/everett Installment obligations. Myfreetaxes.com/everett If the decedent sold property using the installment method and you are collecting payments on an installment obligation acquired from the decedent, use the same gross profit percentage the decedent used to figure the part of each payment that represents profit. Myfreetaxes.com/everett Include in your income the same profit the decedent would have included had death not occurred. Myfreetaxes.com/everett For more information, see Publication 537, Installment Sales. Myfreetaxes.com/everett If you dispose of an installment obligation acquired from a decedent (other than by transfer to the obligor), the rules explained in Publication 537 for figuring gain or loss on the disposition apply to you. Myfreetaxes.com/everett Transfer to obligor. Myfreetaxes.com/everett A transfer of a right to income, discussed earlier, has occurred if the decedent (seller) sold property using the installment method and the installment obligation was transferred to the obligor (buyer or person legally obligated to pay the installments). Myfreetaxes.com/everett A transfer also occurs if the obligation was canceled either at death or by the estate or person receiving the obligation from the decedent. Myfreetaxes.com/everett An obligation that becomes unenforceable is treated as having been canceled. Myfreetaxes.com/everett If such a transfer occurs, the amount included in the income of the transferor (the estate or beneficiary) is the greater of the amount received or the fair market value of the installment obligation at the time of transfer, reduced by the basis of the obligation. Myfreetaxes.com/everett The basis of the obligation is the decedent's basis, adjusted for all installment payments received after the decedent's death and before the transfer. Myfreetaxes.com/everett If the decedent and obligor were related persons, the fair market value of the obligation cannot be less than its face value. Myfreetaxes.com/everett Specific Types of Income in Respect of a Decedent This section explains and provides examples of some specific types of income in respect of a decedent. Myfreetaxes.com/everett Wages. Myfreetaxes.com/everett The entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent. Myfreetaxes.com/everett The income is not reduced by any amounts withheld by the employer. Myfreetaxes.com/everett If the income is $600 or more, the employer should report it in box 3 of Form 1099-MISC, Miscellaneous Income, and give the recipient a copy of the form or a similar statement. Myfreetaxes.com/everett Wages paid as income in respect of a decedent are not subject to federal income tax withholding. Myfreetaxes.com/everett However, if paid during the calendar year of death, they are subject to withholding for social security and Medicare taxes. Myfreetaxes.com/everett These taxes should be included on the decedent's Form W-2 along with the taxes withheld before death. Myfreetaxes.com/everett These wages are not included in box 1 of Form W-2. Myfreetaxes.com/everett Wages paid as income in respect of a decedent after the year of death generally are not subject to withholding for any federal taxe
Internal Revenue Service (IRS)
The Internal Revenue Service (IRS) administers and enforces U.S. federal tax laws.
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Website: Internal Revenue Service (IRS)
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Phone Number: (202) 283-1710
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