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Gianna O. Corona

Executors and Taxes: What Returns Need to be Filed?

When an individual is named as an executor in a deceased loved one’s (decedent’s) last will and testament, there are many responsibilities that such individual must undertake. These responsibilities range from navigating the probate process in the Surrogate’s Court, collecting or marshalling any probate assets to forwarding the decedent’s mail, and paying the debts of the decedent, etc. With so many responsibilities falling on the executor, an executor may not be thinking about what tax returns need to be filed until it is tax season; however, not filing tax returns on time, or worse, not filing them at all, can result in steep penalties being owed by the estate.

So what tax returns does an executor need to file with the IRS? 

The answer will depend on the specific circumstances surrounding the estate but generally there are three returns that might need to be filed:

  1. Decedent’s final Individual Income Tax Return (IRS Form 1040);
  2. Income Tax Return for Estates (IRS Form 1041); and
  3. Estate Tax Return (IRS Form 706). 

Executors may need to file all three of these returns, none of these returns, or some combination of these returns. It is important to understand what each return is utilized for to understand if it will be required for an estate. 

Decedent’s final Individual Income Tax Return (IRS Form 1040):

When an individual passes away, his or her tax obligations do not cease to exist.  An executor must file an Individual Income Tax Return for any income received prior to a decedent’s date of death that has not yet been reported on a return, assuming a return would have been required if the decedent was still alive. Sometimes a decedent did not make enough income in the tax year to require the filing of a return and in those instances no filing is required.  

In those instances where a return would be required to be filed, Executors will often need to wait to file until tax forms have been issued from financial institutions and the IRS has released the new annual tax forms. An individual may have passed away in May, but the estate must wait until January or February of the next year to obtain proper tax forms for filing a correct return. Taxes are certainly a reason that is often cited for estates taking so long to close.

Bottom line, any income taxes that would have been owed if the individual was alive are still owed upon his or her passing. 

Income Tax Return for Estates (IRS Form 1041):

In addition to the decedent’s final income tax return, an income tax return may need to be filed by an executor of an estate to report income, capital gains, deductions, and losses for the estate. Subject to the income thresholds described below, an estate is responsible for reporting this information just as an individual must report this information. These types of returns are limited to the income generated by assets that are actually in the probate estate and typically do not include income associated with assets that pass by beneficiary designation. 

Estate income tax returns should capture information covering the period from the decedent’s date of death to estate closing. Note that multiple returns may be required to be filed if an estate takes multiple years to close and is still generating income on an annual basis. 

These types of returns must be filed for estates that receive $600 or more in gross income in a tax period. This includes income received from savings accounts, CDs, stocks, bonds, mutual funds, rental properties, etc. An Executor should carefully track all income received by the estate to accurately determine if any returns are necessary and seek professional guidance when necessary. 

Estate Tax Return (IRS Form 706):

In addition to income taxes, an estate may need to file an estate tax return. In 2022, Estate Tax Returns are only required to be filed in estates valued at $12.06 million or more. These types of returns consider the decedent’s total asset picture at the time of passing, regardless of whether the asset passed through the decedent’s estate or to a beneficiary through a beneficiary designation. Essentially the return captures a snapshot of everything owned or controlled by the Decedent at his or her time of death. 

If you are the executor of an estate that is subject to filing an estate tax return, it is important that this be addressed sooner rather than later as this return is due within nine (9) months of a decedent’s date of death. The return can be put on extension for six (6) months, but the extension must be filed and any taxes due must be paid within nine (9) months so that deadline is crucial to keep in mind. If an estate tax return is necessary, you should seek professional assistance to get the return filed properly and on time.

Local Tax Returns:

In addition to the above-referenced federal returns, it is important for Executors to keep in mind that the state in which the decedent passed away or owned property in at the time of death will often have their own tax forms that must be filed. 

Executors have many obligations, but one that should not be put on the back burner is addressing any necessary tax returns. If you need guidance concerning a loved one’s estate  or your duties as an executor, please reach out to the Trust and Estate team at Laidlaw & Simon P.C. for a complimentary consultation.

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