Estate Tax Basics

Additional Tax Prep Info.

If you've lost a parent, spouse or other family member, you're learning that not only is the loss an emotional trauma, but the loss creates a tax headache as well.

We want to offer our condolences and try to help you, too, by providing information about the tax returns the estate will need to prepare for the federal and state tax authorities. We will also try to provide a list of the basic information you will need.

Final 1040 Individual Income Tax Return
A final 1040 income tax return will need to be filed for the decedent. In the case of a married couple, the surviving spouse will probably need to file the return. If a court has appointed a personal representative or other estate administrator, that appointee will most likely file the return. The final 1040 return is due April 15th in the year following the death.

Form 706 Estate Tax Return
If the decedent's estate is large, the estate will owe the federal government and probably the state government an estate tax return and very possibly estate taxes will be due. However, most estates are not large enough to need to file or pay estate taxes. For example, currently only estates greater than $2,000,000 owe federal estate taxes. The estate tax return is due nine months after the decedent's death.

Form 1041 Estate Income Tax Return
The estate itself , in other words, the assets the decedent owned and which are distributed to beneficiaries in the months after the death, almost always owes the federal and state government a tax return. This is the tax return on which estate income and deductions are shown. The taxable income or loss generated by the estate, can be paid by the estate or allocated and taxed to the beneficiaries. The estate income tax return is due on the 15th day of the fourth month after the estate tax accounting year ends. However, as long as the estate's first accounting year isn't longer than twelve months, the estate can choose which month ends the tax accounting year for the estate. For example, if someone passes away on October 15, 2007, the estate's accounting year can end on the last day of any month through September 30, 2008.

One other note about Form 1041 estate income tax returns. The personal representative or estate administrator needs to get an employer identification number, or EIN, from the Internal Revenue Service for use in reporting the estate's income and deductions. Often we help get the EIN.

Fees for Estate Services
Estate tax returns and estate income tax returns range from $400 to $1,000 each, depending on how much of the accounting work we need to do. If you need estate tax consultation, we bill $145 per hour for those services.