Part 1
WHAT you need to know when your loved one dies or when you die? What is meant by Final Form 1040, filing of Form 1041 and Form 706?
• Final Form 1040: When you die your final year ends with the date of your death. Your Final Form 1040 income tax return is due on April 15 following your date of death. For example if a person die anytime in 2017, final Form 1040 is due no later than April 17, 2018 (April 15 falls on a weekend). The Final Form 1040 must show the word deceased on top of the income tax return. The signature block of the tax return should indicate the date of death.
• Where to file the decedent’s income tax return: File the income tax return of the decedent where the executor filer lives. For example, the decedent lives in Arizona but the executor filer lives in California, the return will be filed with the IRS Service Center in California where the executor personal representative lives.
• Form SS-4 application of employer identification number: The executor will apply for federal identification number to be used to handle income and expenses received and paid after death, inform creditors, investment firms, and to file Form 1041.
• Form 56 notice of fiduciary relationship: Form 56 expresses the authority to handle the estate and fiduciary matters. The IRS will treat you as if you are actually the taxpayer if you are a fiduciary. Fiduciary have the responsibility and rights to carry out all action required from a taxpayer. Fiduciaries consist of executors, trustees of trust, guardians, administrators, etc.
• Final Form 1040 individual income tax return: All income received and deductions paid before death will be reported in the Final Form 1040 of the decedent.
• Form 1041 tax return of estates and trusts: Any income received and expenses paid after death of the taxpayer will be reported on Form 1041. Form 1041must be filed if the domestic estate gross income for the tax year is more than $600 or the domestic estate has a nonresident alien beneficiary.
• Form 706 estate and generation-skipping transfer (GST) tax return: To report estate and GST tax, you must file Form 706 within 9 months after date of decedent’s death. Use Form 4768 application for extension of time to file if you need more time and is unable to file Form 706 by the due date, for the automatic 6-month extension of time to file.
For portability election to transfer the deceased spouse unused exemption amount to surviving spouse, the Form 706 to make the election must be filed timely within 9-months of decedent’s date of death or before the extension of time to file or 6-months extension period ends. There is no portability in the absence of the surviving spouse. Under the tax cut and jobs act Pub. L. No. 115-97 the basic exclusion amount has been increased to $10,000,000 in 2018 versus $5,490,000 in 2017.
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Disclaimer: Any accounting, business or tax advice contained in this communication is neither intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.
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Al-os & Associates Accountancy Corporation provides accounting and tax services to individuals, corporations, LLCs and business entities. The Firm has a niche in defending taxpayers audited by the IRS and other governmental agencies.