My loved one just passed on, now what? Do we need to file a final Form 1040 tax return? How about a Form 1041 fiduciary tax return? Is a Form 706 necessary? When are all these tax returns due? These are all the questions that may run through your head after a loved ones passing. I can help you walk through this difficult time and decide what needs to be filed and when.

A final Form 1040 is required to be filed if your loved one had gross income of $12,000 or more prior to their passing. A final Form 1040 will need to be filed if there is income tax withheld that can be refunded to the decedent’s estate. The final Form 1040 is due April 15th.

A fiduciary tax return or a Form 1041 will need to be filed if the estate received income of $600 or more.  The income would include but is not limited to: interest income, sale of personal property, sale of personal residence, business income earned, any rental income, etc. Some expenses that can be deducted to offset income would be accounting and legal fees, selling expenses, utility costs, cleaning expenses related to decedent’s assets, brokerage fees, bank charges, etc.

The executor and tax preparer will decide if the tax return will use either a calendar year end or a fiscal year end. A calendar year end would mean the first Form 1041 would include income and expenses from the date of death through 12/31 of that year. The following years’ returns would be for a full calendar year from January through December.   The due dates for the returns would be April 15th of the following year. If the executor chooses to file a fiscal year return he or she can pick any month end and the fiscal year would be the next preceding twelve months. An example: date of death is July 20th, 2019, the return would have a fiscal year of July 21st 2019 to June 30th 2020.

What is a Form 706? The Form 706 is used to calculate federal estate tax.  The return is a snapshot in time of assets and debt the decedent had as of the date of death.  For 2018, a Form 706 is required to be filed if a decedent’s gross assets were more than $11,180,000.  This number is indexed for inflation every year. This includes but is not limited to: bank accounts, brokerage accounts, personal assets, personal home, vehicles, other property, businesses, livestock, crops, etc.

Another reason to file a Form 706 would be for portability. If your spouse passes on and your joint gross estate has the potential to be more than $11,180,000 when you pass on then we recommend Form 706 is filed for the surviving spouse. . Basically your decedents and other beneficiaries would be able to inherit your assets without paying estate tax..  The Form 706 is due nine months after the decedent’s death. Using the example above, July 20th, the due date would be March 20th, 2020.

Obviously this is a complex situation to cover. If you think you may be subject to any of these tax returns, please give us a call and we would be happy to help you.