What Taxes Will You Owe After You Die?
We often get questions about the estate tax and whether that will claim a share of a person’s assets after they die. In reality, the federal estate tax applies to just a small handful of estates, so few Washington residents need to concern themselves with Federal estate tax. That said, there are other tax issues, including Washington State Estate Tax, that you need to think about when it comes to administering someone’s estate or trust.
Washington State Estate Tax
We have previously written about the Washington State Estate Tax and how to avoid it. But it is important to remember that even though you may not have Federal Estate Tax issues, Washington’s Estate Tax Exemption is much lower at $2.193 Million and is capturing more and more Washingtonians than ever before.
Death Does Not End Your Income Tax Obligations
Indeed, when a person dies, it is often necessary for their estate to file two separate federal income tax returns. (Washington has no statewide personal income tax.) The first is essentially the same Form 1040 the person would have filed had they not died. The catch is that this 1040 only reports income, credits, and deductions up until the date of death. The second return is a Form 1041. This form reports any income or tax owed by the decedent’s estate or trust. So it covers any income, credits, or deductions that accrued after the decedent’s death. A 1041 need not be filed unless the estate or trust generated annual gross income of $600 or more, except in cases where one of the beneficiaries of the estate or a trust is a non-resident alien.
Again, the date of death is generally the dividing line between what gets reported on the 1040 versus the 1041. Here is a simple hypothetical example. Lisa died on September 1, 2023. Any income Lisa actually received before September 1 would be reported on her final 1040. But any income received by her estate (or trust) after September 1 would be reported on the 1041.
Who Actually Files a Deceased Person’s Tax Returns?
Obviously, someone who is deceased cannot sign a tax return. For that matter, the IRS does not know a taxpayer is even deceased until they are notified by the personal representative or administrator of their estate. This is the person who is also legally responsible for filing and signing any tax returns.
If, however, the decedent was married and no formal estate has been opened when the final 1040 comes due, the surviving spouse can still file a joint return. They would simply write in the signature area, “Filing as surviving spouse.” Also note that a surviving spouse must still co-sign a joint 1040 with the personal representative if there is one.
Speaking of joint filing, under current IRS regulations the surviving spouse is considered married to the deceased spouse for the entire tax year when the latter died, unless the surviving spouse remarried during that year. If the spouse remarries, they can file a joint return with their new spouse but not the deceased one. Additionally, if the surviving spouse does not remarry, they can file as a “qualifying widower” for the two tax years following their spouse’s death, assuming they meet certain other qualifications.
Contact Moulton Law Offices Today
Taxes are just one of many details involved in the administration of a Washington estate or trust. If you need legal advice or assistance from a qualified Spokane probate lawyer, contact Moulton Law Offices, P.S., today to schedule a free consultation. We serve clients throughout the Spokane Valley, Kennewick, and Yakima area.
