death taxes

Death and Taxes: What Happens When a Deceased Person Owes Taxes?

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No one likes to think about death, especially regarding taxes. But if you’re wondering what happens if a deceased person owes taxes, read on.

We’ll explain how the estate is taxed and who is responsible for paying the bill. We’ll also cover ways to reduce or avoid tax liability on an estate.

So whether you’re planning your estate or are just curious, keep reading for answers to all your questions about death and taxes.

What Happens If a Deceased Person Owes Taxes?

Helping clients cope with taxes for family members or beloved ones who have died is one of the most delicate issues tax experts must deal with.

Many family members wonder if it is necessary to file taxes for deceased persons. The answer is that even though a person passes away, his or her tax obligation remains.

In fact, one of the first things to address is to avoid “surprise” debts by avoiding estate obligations in the future.

filing taxes for someone who has died

If you’re filing taxes for someone who has died, you may be unsure where to start. You may need to request IRS copies of tax records in some circumstances in order to figure out how far back you’ll need to go when filing taxes on behalf of the deceased.

If you’re the administrator of a deceased person’s estate, you must bear the tax burden as if it were your own.

But let’s start with one step at a time. We’ll look at the typical tax-filing route for a deceased parent or loved one first.

Filing Taxes on Behalf of a Deceased Person

If the deceased person is a recent one, you should follow generally the same procedures used by other taxpayers. This implies that all earnings received up to the day of death must be reported.

It’s critical to take advantage of all possible deductions since, as with any filing, you may use estimates and claim them later. The following are some key points to keep in mind:

IRS Form 4506-T: Request for Transcript of Tax Return

You may need to file IRS Form 4506-T: Request for Transcript of Tax Return to obtain tax records of the deceased person. Form 1040, W-2s for withheld income, and 1099s for untaxed income may be needed.

The decedent’s income will count from January 1 of the year they passed until the day before they passed. Write “deceased” next to the taxpayer’s name when filling out tax forms.

When a person dies, the tax deadline is automatically extended to April 15 (tax day) of the following year. A surviving spouse can still submit a joint return for the last year that their spouse lived.

Form 1041: U.S. Income Tax Return for Estates and Trusts 

If the deceased person is leaving a taxable estate, you must file Form 1041: U.S. Income Tax Return for Estates and Trusts.

You’ll also need that form if the estate’s gross income was at least $600 during the tax year in question.

When family members try to prepare current tax returns for deceased individuals, one of the most common problems they encounter is that previous-year taxes remain unfiled.

In this situation, any unfiled returns on behalf of the deceased will be required. While filing tax returns for someone who has died may seem unusual, it is critical to file previous-year filings for the deceased person to avoid having IRS penalties and interest levied against the estate.

What Happens If a Deceased Person Owes Taxes?

If you find out that your departed loved one owes money, you must pay what he or she owes. If you don’t have access to the estate’s cash to settle this right away, the IRS may be able to work out a payment plan for you.

IRS Form 1310

Finally, you may discover that the deceased was owed refund money. The IRS provides a unique form called IRS Form 1310: Statement of a Person Claiming Refund Due a Deceased Taxpayer to claim the payment.

Filing Taxes for a Deceased With No Estate

The executor of an estate is usually responsible for filing taxes on the deceased. But not everyone dies with an estate to manage.

If no executor has been designated, the tax obligations of the departed will fall on a surviving family member. If there is no estate to administer, things may get complicated.

If you’re the representative of a deceased person, you may be required to pay any outstanding taxes.

It may be necessary to contact the IRS to obtain tax records dating back a few years in order to find out what is owing.

Here’s a summary of some of the potential taxes that may need to be paid:

  • Federal taxes
  • State taxes
  • Local taxes
  • Self-employment taxes
  • Business taxes

How long do you have to worry about taxes owed by the decedent?

The IRS Collection Statute Expiration Date (CSED) for all federal taxes is ten years, even if the taxpayer who owes them is no longer alive. That said, each state has its own statute for unpaid taxes.

State taxes are generally graduated tax, meaning they have an expiration date. The expiration dates for state taxes range from three years to 20 years in a few jurisdictions, and state tax obligations never expire in several states.

It’s also worth noting that the IRS may audit someone who has died. Although the fear of an audit generally subsides after three years, the IRS can still investigate a deceased individual.

Don’t Forget to Pay Taxes After Someone Dies.

Because the individual who owed the money is no longer living, many think taxes are void. This might put you on a years-long hunt for creditors, with accumulating fines.

The IRS does not generally “forgive” a tax debt just because a taxpayer is no longer alive. Even if there is an IRS debt after death but without an estate, the IRS will take all feasible steps to collect it before it expires.

The IRS will most certainly contact the beneficiaries of your will in order to try and recoup tax obligations. When a debt is pursued, both close and distant relatives are likely to hear from the IRS, as are both immediate and extended family members.

When settling debts on behalf of someone who has died, the IRS should be regarded the main creditor above all other creditors.

Need help Handling Taxes After Someone Has Died?

Not one of us likes to consider what will happen if a dead person owes taxes. However, if the estate of a loved one is left with unpaid IRS obligations, this may be a reality that lands on your table.

Filing taxes after someone has died can be confusing, even if you usually handle your taxes with no issues.

In reality, it is one of the most difficult tax circumstances a person may face. This is why retaining the services of a tax professional can be so beneficial.

Get help now. We can assist you with any outstanding tax obligations that relatives left behind. Please get in touch with us if you have any questions regarding death taxes after your loved one has died. Get in touch with us right away if you need assistance with any remaining tax responsibilities of a family member.