The official Internal Revenue Service instruction book for survivors, executors and administrators filing returns for deceased individuals in 2023 is 51 pages long, and that would seem to be sufficiently detailed and definitive. Yet, it hasn’t helped with most of the stumbling blocks I’ve faced in settling my mom’s affairs with the IRS.
As it has been with much of my journey in handling my mother’s finances when she got sick and after she died in July, my real-life questions aren’t answered in most rulebooks and guides. Even if the information I need is there, it’s technical jargon that’s not written in a way I can understand — or in a way that’s easy to apply to my situation.
And I’m not alone. Dana Chitwood, a retired financial counselor from Peachtree City, Ga., spoke to me after a frustrating afternoon trying to figure out if she even needed to file final 1040s for her 92-year-old parents, who passed away on the same day in February 2023. Over the years, as they got sicker, Chitwood had simplified their financial life, so when they died, they had only received one Social Security payment each and a little interest income for the year.
“I have a master’s degree in financial counseling and I’ve taken graduate-level courses in income tax, and this was intimidating to me. I’m sitting here about to cry,” says Chitwood. “I’ve spent the last couple of hours researching, and I should have been able to get a clear answer, but one accountant says one thing and another says something different, and the wording of the instructions isn’t clear.”
Owen Arnoff, an enrolled agent and registered investment adviser based in Yuba City, Calif., says in Chitwood’s particular circumstance, the way to figure out if you need to file is to calculate the amount of income received up to the date of death — and split it in half for two people. The income threshold for a person over 65 for filing would be $15,350 — the standard deduction for 2023 for that age group — but there might be other circumstances that would cause you to want to file, like state tax requirements or to get a refund. It’s not exactly intuitive.
Gather your paperwork
If you do embark on filing a last tax return for somebody, the first thing you’re going to need is a lot of paperwork that is not your own and can be hard to come by. That’s something you need to consider as you go through the early steps of settling the affairs of somebody who dies, because you might lose track of things by the time it comes time to file their tax return.
That’s where I ran into my first set of problems. I needed end-of-year statements for my mom’s income and expenses, but I had already closed out the bank accounts, sold her condo and stopped her pension. A few months had gone by and I forgot some of the details. Would the 1099s find me from her forwarded mail? How would I compute her copious medical expenses from those months to take them as a deduction? The IRS isn’t any help on that score.
“It’s an extremely burdensome situation,” says Ashley Francis, a certified public accountant in Washington state specializing in trust and estate-tax issues. She suggests touching base with the financial institutions involved and ensuring they have the correct address for statements. If all else fails, you can access income and wage statements by getting an account at the IRS and pulling the person’s transcript. As an executor, you have to fill out form 4506-T, Francis says, and probably file for an extension to have extra time to sort it all out.
Miraculously, most of what I needed made it to me by the end of February, but not without some elbow grease. The hardest to get was my mother’s 1098 mortgage-interest statement, which the mortgage company said it couldn’t release to me with the trust documents they already had on file for the sale, so I had to file probate documents. It was a bizarre loop.
The most cumbersome math was to add up her medical expenses to see if they totaled more than 7.5% of her adjusted gross income. I gave up after a while because it wasn’t worth my time to cull through credit-card statements and checkbooks. Taking the standard deduction is a lot easier — and not having a refund is actually easier than trying to claim one for a deceased person. I am still trying to wrangle my mother’s refund from 2022, which got stalled because she passed away in the middle of her late-filed return being processed.
Don’t forget the 1041
I wasn’t done even after all of this. That last tax return I had so dreaded turned out to be three separate returns to consider. I needed a final 1040 for the portion of the year my mother was alive, plus possibly estate and trust returns — two separate filings of Form 1041. My mom had a small amount of income in her estate, which is just basically the legal entity that exists after a person dies, established by a probate court. She also had a trust, which held her condo and other property.
I didn’t try to do any of this on my own, and hiring a professional with experience filing last tax returns might help if you get stuck. One thing to note is that you can file a last 1040 with DIY tax software, but 1041 forms will require a more advanced package. Some forms, like Form 1310 to claim a refund for a deceased person, might need to be filed by regular mail.
A tax professional “can lay out a road map,” says Josh Plunk, a tax partner at Whitley Penn in Houston, Tex. “We can say, this is where the documents say you’re supposed to be. We can walk you through that process step-by-step to get there.”
For my family, our tax professional helped count up the interest income that went to the estate and trust, mostly detailed in brokerage statements, and the condo sales costs and proceeds. If we had waited longer to sell her condo and the property had appreciated, that might have come into play, but we sold quickly, so we owed no capital gains.
Going into tax season, I was coordinating six different tax returns — mine, one for each of my two working teenagers, and potentially three for my mom. Lucky me, because we don’t meet the $600 threshold to file a 1041 estate return, we can technically skip that one. But we do need to file a 1041 trust return. So I’m down to five returns, and thank goodness my accountant has a lot of patience.
