topic | pay estate debts, taxes, and expenses

Step 4: pay taxes

The executor must ensure that all tax liabilities are cared for. This may include filing:

  • individual income tax returns
  • estate tax returns
  • estate income (fiduciary) tax returns
  • gift tax returns
  • property taxes
  • business taxes
  • special state estate taxes on behalf of the decedent

Taxes can be complicated, and time constraints may increase pressures. Consider consulting a Certified Public Accountant (CPA).

Activity 1
Gather Information

  • Did the decedent file taxes for the previous year? If not, the executor must file for both years.
  • Were monetary gifts distributed just before death? If so, a gift tax return may be necessary.
  • Is there a state estate tax where the decedent lived? The following states have estate taxes: Iowa, Indiana, Kentucky, Maryland, Nebraska, New Jersey, Oklahoma, Pennsylvania, and Tennessee
  • Did the decedent own property? Property tax must be paid if the property has not been sold.
  • Did the decedent own a business? Business taxes may need to be paid.
  • What is the value of the estate?
    • For estate tax purposes, the decedent’s estate includes non-probate assets such as joint tenancy assets, life insurance, 401(k), IRAs, and assets held in a Trust.
    • Fiduciary Income taxes must be filed if the estate has any taxable income or has gross income of $600 or more in any taxable year.
  • When do the taxes need to be filed?
    • Federal Estate tax returns are due nine months from the date of death.
    • Estate Income tax returns must be filed on or before the 15th day of the fourth month following the close of the taxable year. When an individual dies, their taxable year ends on the date of death. Income and deductions should be reported through that date.

Activity 2
Determine What to File

Use information from a qualified accountant, the state tax guidelines for the decedent’s primary state residence, and Federal tax guidelines to determine which tax forms must be filed.

  • An Estate Tax return must be filed if:
    • the estate is worth over $3.5 million for deaths after January 1, 2009 or $2 million for deaths prior to 2009
    • there were any interest bearing accounts (stocks and other investment accounts) held in the name of the estate between the time of death and the time the estate was disbursed
  • 1040 Federal Income Tax return (the decedent's personal income tax return)
  • 1041 Fiduciary Income Tax return (to pay income taxes for the estate)
  • 709 Federal Gift Tax return(s)

Activity 3
Gather and Complete Tax Forms

Compile forms such as W-2s, 1099s, and 1098s. Complete all appropriate tax forms for the estate. This may include individual, estate, estate income (fiduciary), business, and Federal and State taxes.

Activity 4
Pay Federal and State taxes.

Payments for Federal and State taxes should be made through the estate checking account. Record payments in the ledger of the checkbook.

Activity 5
Pay Property Taxes

Property taxes should be paid on property that remains in the deceased’s name when the tax is due. Payment should be made through the estate checking account. Record payments in the ledger of the checkbook.

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