The IRS's official book of instructions for survivors, executors, and administrators filing returns for deceased individuals in 2023 is 51 pages long, and that seems sufficiently detailed and definitive. However, it did not help me overcome most of the obstacles I faced in settling my mother's affairs with the IRS.
As was the case for most of my journey dealing with my mother's finances when she became ill and after she passed away in July, my factual questions went unanswered in most rulebooks and guides. Even if the information I need is there, it's technical jargon that's not written in a way that I can understand — or in a way that's easy to apply to my situation.
And I'm not alone. Dana Chitwood, a retired financial advisor from Peachtree City, Georgia, spoke with me after a frustrating afternoon trying to figure out whether she needed to file final 1040s for her 92-year-old parents, who died on the same day in February 2023. Over the Years As they became sicker, Chitwood simplified their financial lives, so when they died, they received only one Social Security payment each and a little interest income for the year.
“I got a master's degree in financial counseling and took graduate-level courses in income tax, and this was scary for me. I'm sitting here on the verge of tears,” Chitwood says. “I spent the last two hours researching, and I should have “I can get a clear answer, but one accountant says one thing and another says something different, and the wording of the instructions is unclear.”
Given Chitwood's special circumstances, the way to know if you need to file is to calculate the amount of income you received up to the date of death — and divide it in half, says Owen Arnoff, a registered agent and registered investment advisor based in Yuba City, California. For two people. The income limit for a person over 65 to file would be $15,350 — the standard deduction for 2023 for this age group — but there may be other circumstances that might make you want to file, such as state tax or refund requirements. It's not entirely intuitive.
Gather your papers
If you set out to file someone's final tax return, the first thing you'll need is a lot of paperwork that doesn't belong to you and can be difficult to obtain. This is something you should consider as you go through the first steps of settling the affairs of someone who has died, because you may lose track of things when it comes time to file their tax return.
This is where I ran into my first set of problems. I needed year-end statements for my mother's income and expenses, but I had already closed bank accounts, sold her apartment and stopped her pension. It's been a few months and I've forgotten some details. Will the 1099 number from her forwarded mail find me? How do I calculate her copious medical expenses from those months to consider them a deduction? The IRS offers no assistance in this matter.
“It's a very stressful situation,” says Ashley Francis, a certified public accountant in Washington state who specializes in trust and estate tax issues. It is suggested to contact the relevant financial institutions and ensure that they have the correct address for the data. If all else fails, you can access income and wage statements by getting an account with the IRS and pulling the person's copy. As executor, you'll have to fill out Form 4506-T, Francis says, and perhaps file for an extension to get extra time to sort everything out.
Miraculously, most of what I needed arrived by the end of February, but not without some effort. The hardest thing for me to get was my mother's 1098 mortgage interest statement, which the mortgage company said they couldn't issue to me with the trust documents they already had on file for the sale, so I had to provide the probate documents. It was a strange episode.
The more complicated calculation was adding up her medical expenses to see if they amounted to more than 7.5% of her adjusted gross income. I gave up after a while because it wasn't worth my time reviewing credit card statements and checkbooks. Taking the standard deduction is a lot easier — and not getting a refund is actually easier than trying to claim a deduction for a deceased person. I'm still trying to negotiate a refund for my mother starting in 2022, which stalled due to her passing while her overdue returns were being processed.
Don't forget 1041
And I'm not even finished after all this. The last tax return I was dreading turned out to be three separate returns to consider. I needed a final 1040 for the portion of the year my mother was alive, as well as estate and trust returns – two separate Form 1041 filings. My mother had a small amount of income in her estate, which is basically just a legal entity that exists after the person dies, which Established by the Inheritance Court. She also had a trust that held her apartment and other possessions.
I haven't tried to do any of this on my own, and it may help to hire a professional with experience filing recent tax returns if you have trouble. One thing to note is that you can file another 1040 using DIY tax software, but 1041 forms will require a more advanced package. Some forms, such as Form 1310 to claim a refund for a deceased person, may need to be filed by regular mail.
“A tax professional can lay out a road map,” says Josh Blank, a tax partner at Whitley Penn in Houston, Texas. “We can say this is where the documents say you're supposed to be. We can walk you through that step-by-step process to get there.” .
For my family, our tax professional helped calculate the interest income that went to estates and trusts, which were mostly itemized in brokerage statements, and the costs and proceeds of condo sales. If we had waited longer to sell her apartment and the value of the property had risen, that might have happened, but we sold quickly, so we didn't owe any capital gains.
As tax season approaches, I've been formatting six different tax returns — my own, one for each of my working teens, and maybe three for my mom. Lucky for me, because we don't meet the $600 threshold for filing a 1041 estate return, we can technically skip that. But we need to file a 1041 trust declaration. I've had five returns, thank God my accountant has great patience.
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