Do you need assistance as an executor in estate administration?

When a loved one passes on, preparing the final tax returns and doing the tax returns for the estate can be a difficult and confusing process best left to a professional. We can prepare those returns for you and help you every step of the way.

Sorting out the Taxes in an Estate

Many individuals are confused about the tax returns that need to be filed after a person is deceased. Often the confusion lies in the fact that there are several types of returns with different objectives. There are inheritance tax returns and income tax returns. They are as follows:

Income Tax Returns

(These are the returns used to report income and determine income tax before and after death). This discussion is for cash basis taxpayers:

• Federal form 1040- income tax return while alive. Income and allowable deductions after death belong on another return.
• Federal form 1041- income tax return starting at the death of the taxpayer. Income and allowable deductions after death go on this return.
• >> Income Tax Tip: When someone dies, the value of assets owned is “stepped up” creating tax savings. An example is if the deceased owned a share of stock purchased at $10 and after death, it was sold for $100, and the value at the date of death was $95 on the “before death” tax return, the gain would have been $90 but on the “after death” return the gain is only $5.

Estate Tax Returns

(These returns are an inventory of assets owned and liabilities owed by the taxpayer at the time of death. The estate’s value is then determined, and an estate tax is imposed on this net amount if it exceeds certain amounts.)

• Federal form 706: No tax is imposed until the estate value exceeds an IRS amount that changes annually. Most taxpayers with the new higher exclusion limits are exempt from paying federal estate tax.

This is a simplified explanation of a complicated matter to help create an understanding of the difference between the two types of returns. It is best to consult a professional to assist in this process.