Filing An Estate Tax Return: What To Know

When dealing with the loss of a loved one, handling financial matters can be difficult on top of all the emotions swirling around. Handling this person’s estate, including filing an estate tax return, can feel challenging, especially if you don’t know where to begin.

Gaining a basic understanding of how estate tax returns work can help you navigate the process. Here’s a simple guide that covers what you need to know about filing an estate tax return. This guide is just a starting point; please consult a tax professional for individual assistance filing.

When Is An Estate Tax Return Required?

An estate tax return is required when the deceased has left behind assets (known as their estate) that’s over the exemption amount. The 2022 federal tax exemption was $12.92 million, and the 2023 federal tax exemption is $13.61 million. Only estates that are worth more than these amounts are required to pay federal estate taxes and file Form 706.

An estate income tax is different from estate tax in that the latter is the amount of taxes you need to pay for the amount that’s part of the deceased’s estate. An estate income tax, on the other hand, is placed on the amount of income the estate itself earns. Estate income is typically generated from earnings from assets such as stocks, bonds, savings accounts, rental property or even a paycheck deposited into the deceased’s bank account after their death.

You are required to file an estate income tax return using Form 1041 for the estate if it generates $600 or more in annual gross income. You must also file an estate income tax return when a beneficiary is a nonresident alien — someone who isn’t a U.S. citizen and hasn’t passed the green card or substantial presence test.

Estate tax returns are due the same day as individual federal and state returns, typically mid-April of each calendar year. The estate income tax return can be filed up to 9 months after the deceased’s date of death. You can fill out form 7004 to apply for a 6-month extension, although you must pay the estimated correct amount of taxes and request the extension prior to your original due date.

Who Must File An Estate Tax Return?

The executor of the deceased’s will is the person responsible for filing the estate tax return. However, for those who died without a will, or if the executor doesn’t want to or can’t fulfill the responsibility, the state will appoint someone to be the estate administrator or personal representative.

If you're a surviving spouse, you’re allowed to file a joint tax return with the deceased if you didn’t remarry before the end of the tax year. Someone who manages the property may also qualify to file the estate’s tax return.

Types Of Estate Tax Return Forms

The following are types of estate tax return forms you may be required to file depending on your circumstances.

Form 1040

Sometimes called the “final tax return” for the deceased, Form 1040 is completed by every U.S. taxpayer who files an annual tax return. You may need to file this form if your loved one earned income, though it’ll depend on the amount and how much federal income taxes were already withheld. The typical deadline is around April 15 for each calendar year.

Form 1041

Form 1041 is an income tax return for estates and trusts and is required when the estate generates at least $600 in income, has taxable income or the beneficiary is a nonresident alien.

The deadline to file this form for calendar year estates in most states is April 15 of the following year to file this return. For estates that follow the fiscal year, you can file the return up to 12 months after the deceased’s date of death.

For instance, if you choose a fiscal year for the estate return and your loved one died on Nov. 10, 2022, the deadline would be Oct. 30, 2023.

Form 706

Form 706 is required If your loved one left behind an estate that’s greater than the federal estate tax exemption. The due date to file Form 706 is usually 9 months after the person’s date of death, but you can apply for a 6-month extension if you need more time.

Deductible Expenses On Estate-Related Tax Returns

The estate may qualify for certain deductions, including:

●      Distributions to beneficiaries: The estate may be able to deduct an income that’s required to be distributed to beneficiaries.

●      Executor’s fees: You typically can deduct fees paid to an executor for handling an estate’s affairs.

●      Expert fees: These fees include those paid to an attorney, tax preparer or accountant to help handle the estate.

●      Debt: If the estate has debt such as mortgage or credit card bills, you can deduct this amount when filing estate taxes.

●      Charitable contributions: Any property of the deceased donated to charity may be deductible for its fair market value – a reasonable price a seller would purchase the property for on the open market – may be deductible.

How To File An Estate Tax Return

1. Gather the required information. Documentation you may need to provide include bank statements, retirement account statements, W-2s and the deceased’s Social Security number. If you don’t know where to find this information, consider requesting a transcript of their previous tax return from the IRS by submitting Form 4506-T.

2. Fill out Form 1040. If you’re filing a paper return, write “DECEASED,” along with the person’s name and date of death across the top of the form.

3. Apply for a tax identification number and fill out Form 1041. Before you file Form 1041, you’ll have to apply for a tax identification number, also known as an employment identification number, for the estate. If the beneficiary is a nonresident alien, you’ll need to fill this form out no matter what.

4. Determine whether you need to fill out Form 706. Look through any relevant paperwork to see if the estate itself is worth over the federal exemption limit, which is $12.92 million for the 2022 tax year, and is $13.61 million for the 2023 tax year.

Estate Tax Return FAQs

Consider the following frequently asked questions to help you learn more about filing an estate tax return.

Do I have to file a state estate tax return?

You may have to file a state estate tax return if your state has one. There are currently 33 states that don’t have an inheritance or estate tax.

Are funeral expenses tax-deductible?

The beneficiaries can’t deduct taxes for funeral expenses, but any expenses that are paid out of the deceased’s estate generally can.

How does an executor sign a tax return?

An executor signs a tax return with their name and role. For example, “Barbara Chan, surviving spouse,” or "James McDonald, Executor of the Estate of Bob Chan."

The Bottom Line

Filing an estate tax return can be difficult, especially while you’re grieving the death of a loved one. By learning how the estate tax process works, you’ll be better prepared to handle the responsibility of filing one for your loved one. Depending on the income earned and the amount the deceased left behind, you will need to file the relevant forms.

If you need help preparing or filing an estate tax return, consider reaching out to an estate tax professional. To read more articles on personal finance matters that could affect you, visit our financial Learning Center.