Estate Income Tax
When an individual passes away, another "tax-paying" entity is created, known as the "decedent's estate." If the person died prior to filing the previous year's tax return, there will be three different returns that must be filed by the estate executor (administrator). They would include the following:
- The previous year's normal tax return (Form 1040)
- The final tax return (Form 1040) - for the beginning of the new year to the date of death and
- The estate tax return (Form 1041) - covering earnings from the date of death until the end of the New Year.
The estate may have an income tax filing requirement on Form 1041 for each year that it has $600 or more of gross income (or a non-resident alien beneficiary). This is calculated each year from the date of death, until the entire amount of the estate has been distributed to the beneficiaries.
"Income In Respect of a Decedent"
If a beneficiary receives income that was earned (but not paid) by the decedent before death, then this income is called "income in respect of a decedent" and it is reported on the beneficiary's tax return.
Examples include: lottery winnings, installment sale receipts, IRA distributions, etc.
Sample Questions 1 - 5
Financial AdvisorInheritance is a double-edged sword, as leaving money can create estate tax burdens. Opting for a life insurance plan can help mitigate those burdens.
TaxesInheritance taxes can be tricky. Most people have to deal with them at a very inconvenient time. It's better to learn the laws now so you're ready later.
RetirementMany people try to avoid this process altogether, making things difficult for heirs.
TaxesThe tax implications of an inheritance can be complex. Here's what beneficiaries need to know.
TaxesUnderstand the difference between the federal estate tax and state-specific estate taxes. Learn about some of the worst states with estate taxes.
TaxesThe 2010 estate tax lapse could be costly to your family if it keeps you from planning.
RetirementWhen organizing your affairs, you'll need to be aware of tax rates and other regulations.
Managing WealthWith some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
RetirementHow to avoid 5 surprising hazards of being the executor of an estate.