An executor is responsible for filing tax returns for both the deceased individually and for her estate. The estate return is usually due within nine months after death. With the individual return, the executor should also file a copy of the death certificate and alert the IRS that the taxpayer has passed away. If you are the executor of an estate, you should consult with an accountant, tax attorney or estate attorney for guidance. Tax laws governing estates are complex. For example, an estate can use any fiscal year it chooses and there may be significant tax savings or ramifications for the estate resulting from the one you choose.
Common Tax Liabilities
Because most estates generate at least some income while they are being probated, an estate income tax return must usually be filed with the IRS by the executor to account for that money. This is separate from, and in addition to, death taxes which, can be due on the overall value of the estate. If the deceased earned any income during his last year of life, a personal tax return is also necessary. Some states also require inheritance taxes. The IRS places a lien on all real estate owned by the decedent until federal taxes are paid.
The Law as of 2010
In 2001, President Bush passed a tax cut intended to phase out estate or death taxes – though not estate income taxes – by 2011. Under that law, the estates of those dying in 2011, and presumably later, would not have been required to pay taxes on the value of assets, but only on any income earned by the estate during probate. The Obama administration changed that law in early 2009 to keep the tax liabilities against estates as they were at that time. Instead of being eliminated in 2011, estate taxes maintain at 45 percent of the value of the estate for estates valued at up to $3.5 million in 2010 and beyond.
The IRS allows tax deductions on estate income tax returns for any state inheritance taxes paid, as well as for taxes paid on the value of the estate. Some family-owned businesses qualify for exemptions. If a surviving spouse is not a United States citizen, a portion of estate taxes might be deferred. Costs of administering the estate, such as professional fees to accountants, attorneys and appraisers, probate expenses, real estate commissions and fees incurred by selling assets, are also deductible.