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2 tax returns an executor must file during probate proceedings

On Behalf of | Jan 25, 2022 | Estate Planning |

Probate administration is a complex process. You have numerous responsibilities to manage if you agree to serve as the executor of an estate. You have to contact family members and beneficiaries. You have to send notice to creditors. You will also have to arrange for the sale or distribution of estate assets.

In between court hearings and phone calls with utility companies, you will also need to file tax returns. If the estate isn’t worth millions of dollars, then you likely don’t have to worry about paying estate taxes before distributing assets to the beneficiaries.

However, you may be responsible for filing two different kinds of income tax returns as you fulfill your duties for the estate. 

Filing a final income tax return for the deceased

It is often the executor of an estate who finalizes all of the deceased person’s financial responsibilities. This will include filing a final income tax return on behalf of the deceased individual and paying any taxes that they may have owed to the federal government.

Even individuals who did not have a job or income at the time of their deaths will need a final return filed on their behalf.

Filing an income tax return for the estate itself

As you fulfill the last wishes of the testator, pay off their debts and distribute their assets, you may generate revenue for the estate. It’s quite common for people to leave instructions to sell certain property or to hold an estate sale for their miscellaneous personal possessions.

Selling property might generate quite a bit of money that you will then distribute to the appropriate beneficiaries. If estate sales or the transfer of property like real estate generates more than $600 in revenue, you will need to file an income tax return on behalf of the estate.

Knowing about these tax obligations is crucial, as you might otherwise distribute too much of the property from the estate to beneficiaries without retaining enough to pay any necessary taxes. In some cases where an executor distributes assets without fulfilling key financial obligations, they could face claims over unsettled accounts. Keeping accurate financial records and retaining assets to cover tax liabilities are important considerations during estate administration.