Death and taxes may be equally inevitable, but the taxman demands the last word. Death does not excuse a final accounting with the IRS. In fact, taxes can further complicate the lives of survivors.
Of the two certainties in life – that is, of death and of taxes –the taxman always gets the grim last word. End-of-life taxes are, moreover, easily among the most onerous. For many loved ones, writing those last few checks to the IRS can be especially tough … and seem to never end. Enter the postmortem income tax return.
The death taxes are one thing, and inheritance taxes are generally another, since they are paid by the inheritor. However, as a recent article in Kiplinger makes clear, there usually is one final income tax return to file for the decedent. I recommend the article, titled Death and Taxes, for your reading.
The burden of filing this final income tax return is something you assign in your will, usually to the executor or administrator, or failing that it falls upon a survivor. Regardless, do not neglect that duty if you occupy one of those roles. Why? Because it is just basic estate planning and administration.
If you are planning your estate or if you are administrating one, this burden is not one to be taken lightly. To make matters worse, the fiduciary is on the hook for any sins of commission or omission. If ever there was a time to retain appropriate legal, accounting and tax advice, then this is one of them.
Bottom line: The income taxes likely are the least of your taxation concerns with the estate, inheritance, gift, and generation-skipping taxes all vying for attention. Unfortunately, that doesn’t diminish the importance of income taxes.
Even if an estate will not be subject to extra taxation, this last rite to the IRS has to be observed.
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Reference: Kiplinger (March 2012) “Death and Taxes”