Income Tax and Estates
The beginning of the new year means that we will be receiving tax documents in the mail which are needed for the preparation of income tax returns by April 15. Executors and administrators of estates should be aware of these documents and the need to file income tax returns for the estate, as needed.
The Final Income Tax Return
Executors and Administrators are responsible for filing the deceased’s final income tax return and ensuring payment of the tax, by April 15 of the following tax year. Form W-2 and 1099’s should be collected and used to prepare the returns, just as one would for their own returns.
The Fiduciary Tax
In addition to filing tax returns on the income earned by the deceased while alive, the estate may have to pay income tax on the earnings received during estate administration, annually. Executors and administrators will be receiving 1099’s from investment companies, banks, and other institutions. If the interest and other income amount to more than six hundred dollars in that year, taxes will have to be paid by the estate.
Closing the Estate
The Fiduciary Tax may have to be filed for every year the estate remains open. This is why it is a good idea to finish up an estate and distribute the assets to the beneficiaries before the end of the year, if possible. Remaining open past December 31 may mean that a return has to be filed in the following year. Of course, in making distributions to the beneficiaries before December 31, the executor should hold enough money back to pay any anticipated taxes. If all of the estate’s money is distributed to the beneficiaries, it will be very difficult to get money back from the beneficiaries to pay the taxes. Money held back should be kept in a non-interest bearing account.
Taxes and Estates
Not many people are aware of tax requirements on estates and the legal responsibility of executors to comply with them. Certain deadlines and strategies can be employed to ensure compliance and also limit exposure. These are all issues with which we can help. Please call us for a consultation.