A personal representative who is legally responsible for administering the property of someone who dies is also required to file tax returns reporting income attributable to the decedent. A final individual tax return must be filed with the IRS. Whether a separate tax return for the estate is also necessary depends upon when income is received and who receives it.
Income Before Death
Income received by the decedent before death is reported on a final personal income tax return. This includes income that was credited to any account of the decedent or made available without restriction before death. Tax-deductible expenses paid before death should be deducted on the personal tax return. The due date for the final personal tax return is the same as if the decedent had lived for the entire year. A separate tax return may be required for the year preceding death if the person died prior to the due date for that return. The final income and deductions of the decedent may be reported on a joint tax return with a surviving spouse. The personal representative of the estate---which may be a surviving spouse---signs the return for the decedent and attaches a copy of the court certificate stating the appointment as representative. On the front of the tax return, following the name of the decedent, the word "deceased" and the date of death should be printed.
A decedent's estate is a separate legal entity for federal tax purposes. A decedent's estate comes into existence at the time of the individual's death. An estate tax return reports the decedents income after the date of death. This is income received by the representative of the estate that would have been paid to the decedent. An estate tax return is allowed a deduction for distributions of income to beneficiaries of the estate. Due to this deduction, an estate pays no tax on distributed income.
Tax is paid by a beneficiary---not the estate---on income distributed to the beneficiary by the estate. This includes income not actually distributed to the beneficiary that is required for distribution to the beneficiary in the future. An estate tax return is not required if there is a timely disposition of property to the decedent's beneficiaries. This normally results in the beneficiaries receiving income from property that was owned by the decedent.
- angel of death. image by Tom Oliveira from Fotolia.com