Filing a deceased taxpayers return does not have to be difficult, if you get help or learn ahead of time what to do. Here are some tips. There are generally two types of taxes owed by an estate: One on the transfer of assets from the decedent to their beneficiaries and heirs (the estate tax), and another on income generated by assets of the decedent’s estate (the income tax). This page contains basic information to help you understand when an estate is required to file an income tax return.
Filing a deceased taxpayers return when someone dies, their assets become the property of the estate. Any income those assets generate is also part of the estate and may trigger the requirements to file an estate income tax return. Examples of assets that wold generate income to the decedent’s estate include savings accounts, CD’s, stocks, bonds, mutual funds, and rental property. IRS Form 1041, U.S Income Tax Return for Estates and Trusts, is required if the estate generates more than $600 in annual gross income.
The decedent and their estate are separate taxable entities. Before filing Form 1041, you will need to obtain a tax ID number for the estate. An estate’s tax ID number is called an “employer identification number” or EIN, and comes in the format 12-345678X. You can apply online for this number. You can also apply for FAX or mail. A decedent’s estate figures its gross income in much the same way as an individual. Most deductions and credits allowed to individuals are also allowed to estates and trusts. However, there is one major distinction. A trust or decedent’s estate is allowed an income distribution deduction for distributions to beneficiaries. Income distributions are reported to beneficiaries and the IRS on Schedules K-1.
In general, an estate must pay quarterly estimated income tax in the same manner as individuals. For more information on when estimated tax payments are required see the Form 1041 instructions.