21 Mar Filing tax returns after someone dies

Q. Do I file 2018 tax returns for my father? He passed away in October 2018.
— Son

A. We’re sorry for your loss.

Yes, you will need to file tax returns for your father’s last year.

Generally speaking, when someone dies the final individual federal and state tax return must be prepared and filed in the same manner as when they were alive, said Matthew DeFelice, a certified financial planner with U.S. Financial Services in Fairfield.

“All income from the beginning of the year up to the date of death must be reported on the return and all deductions and tax credits that the individual was entitled to may be claimed,” DeFelice said, noting the final return is typically filed by the surviving spouse, or if none, exists by the executor of their estate.

The final return can either be e-filed or filed on paper, and the preparer should be sure to write “deceased” after the taxpayer’s name and include the date of death so that the IRS knows that this will be the last individual return filed, he said.

However, it usually doesn’t end there.

Upon the death of a taxpayer, a new taxpaying entity – the taxpayer’s estate – is automatically created to make sure no taxable income falls through the cracks, DeFelice said.

“Where income earned during the tax year up to the date of death gets reported on the final individual tax return, earnings after that date are taxable to the decedent’s estate,” he said. “Earned income of the estate constitutes any income for which the decedent was entitled to during the year that occurred after the date of death.”

For example, any dividends or interest from stock or bond investments held in the decedent’s name that was received between the October date of death and Dec. 31, 2018, would go to the tests.

Additionally, DeFelice said, beneficiaries of assets paid directly to them outside of probate – such as IRAs already in distribution mode or life insurance policies – could be subject to what is called “income in respect of a decedent,” or IRD.

DeFelice said two things must apply for this to occur.

First, the asset earns interest before the balance is transferred or paid to the beneficiaries. Second, the interest is not reported on the deceased taxpayer’s final return.

“If both of these are true, then beneficiaries are responsible for reporting IRD on their own tax returns,” he said.

Also note your father’s estate may then also need to file returns. Speak with an estate planning attorney or tax preparer to make sure you do the right thing here, too.

Email your questions to .

This story was originally published in March 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.