Dealing with a loved one’s death can be difficult and emotional. In addition to dealing with your grief, it can be not easy to figure out. How to handle your loved one’s finances.
Luckily, there are certain steps you can take to ensure that your deceased relative’s taxes are taken care of after they pass away. These steps can help you avoid the stress of a tax audit.
When a person dies, there are many taxes that they must pay. They may owe tax on their income, their estate, and more.
For example, if a decedent owns the property, their estate will owe a death or inheritance tax based on the property’s value at the time of their death. This can include real estate, bank accounts, stocks and bonds, and even closely held investment assets.
In most cases, the surviving spouse or the estate executor will pay these debts after a decedent’s death. However, sometimes a relative or friend of the deceased will also have to pay them personally.
During the probate process, the IRS can back-audit a deceased person’s taxes up to 6 years after they file their final tax return. They can then collect the money by placing a lien on the decedent’s property or filing a claim against their estate, just like any other creditor would.
When someone dies, their estate (the sum of all assets a person owns and owes at the time of death) becomes subject to taxes. This includes federal and state income and inheritance taxes.
The IRS will attach a lien to the estate for the debts, so heirs can’t sell the deceased person’s property until all taxes are paid.
Generally, the executor of the decedent’s estate is responsible for settling and paying all debts incurred by the decedent. However, this can be difficult when the executor is a relative, says Lyle Solomon of Oak View Law Group in Rocklin, California.
“An example would be if the decedent’s daughter received the home as the sole heir and did not pay the federal and state income taxes on the property before distribution,” Solomon explains.
In such a case, the daughter could face legal liability for the unpaid tax obligations under both ‘transferee liability’ and ‘fiduciary liability’ claims.
The surviving spouse of a deceased person has a legal responsibility to file the final tax return for the decedent. This can be done by a surviving spouse, a personal representative named in the will or appointed by the court, or a trustee responsible for the estate’s assets.
Depending on the circumstances of the death, a variety of tax situations may arise for the surviving spouse. For example, they can file as a qualifying widow(er) or continue to use the married filing jointly standard deduction for two years if they have dependents.
A surviving spouse may also have to pay tax on property they own at their death unless that property was inherited. This may include their share of the money held in a joint bank or building society account.
They can also owe tax on any capital gains they have earned or received during their lifetime and their income from other sources. Working with a CPA or tax professional to help them complete their final return. And ensure that all of their taxes are paid is a good idea.
When someone dies, they leave behind a large estate, which is taxable. This includes everything from cash to property to heirlooms and more.
A surviving spouse may be require to pay taxes on their deceased loved one’s behalf. Sometimes their children will inherit the tax obligations too. The surviving spouse is also liable for other estate duties. Like filing a will, dealing with probate issues, and settling debts.
In the grand scheme, the surviving spouse can’t be expect to handle every detail of a large estate. So it’s often best to hire a professional to do it for them. This will help ensure that everything is handle correctly, saving you a ton of money in the long run. For example, hiring a tax planner can help you avoid costly mistakes and make the most of your money. This is particularly true if you’re in a high tax bracket. It’s always wise to research before taking on a new task.