Archive for May, 2012

Tax Duties of an Executor

May 21, 2012

When someone dies, a personal representative is in charge of the estate to collect assets, pay off the debts, and distribute the remaining assets to heirs or beneficiaries. (FYI – The personal representative is called an “Executor” if the person was identified in the will, or an “Administrator” if he or she was appointed by the court because there was no Will).  The personal representative is also in charge of taxes, both federal and state, for the individual and for the estate. Here are a few important points for tax purposes:

1.     Form 1040 – Individual Income Tax Return

The personal representative will file a Form 1040 tax return for the year the individual died, covering January 1 until the date of death. Form 1040 is due on the usual date, April 15. If the individual was married at death, this can be a joint return.

2.    Form 1041 – Estate Income Tax Return

Any income earned on assets after the decedent’s death but before the asset is distributed to a beneficiary is treated as income to the estate. Uncle Sam won’t let that income slide past his reach, so the estate files an income tax return if the annual gross income to the estate is $600 or greater.  Small estates or estates with assets that can be distributed quickly often avoid this tax. Form 1041 is due on the 15th day of the 4th month following the close of the tax year. If the estate uses the calendar year, the return is due April 15.

3.     Form 706 – Inheritance and/or Estate Tax Return

 A federal estate tax return must be filed (and estate tax due) if the gross estate exceeds the exemption amount, which is $5.12 million in 2012. Form 706 is due nine months after death, but can be extended for six months. An Iowa inheritance return will likely be required if the estate is distributed to persons other than a spouse, lineal descendants or lineal ascendants.  

 4.    EIN Number

 If the estate will be filing Form 1041 and/or Form 706, the estate must get its own Federal Employer Identification Number (EIN or FEIN).  An EIN for an estate is equivalent to a social security number for an individual. An EIN will be needed to open a checking account for the estate.

 A personal representative has many duties when it comes to administering an estate, which is probably why most personal representatives hire a tax professional to complete the tax matters. After all, if you dread doing your own taxes, doing someone else’s taxes probably isn’t too appealing.


Reporting All Income

May 9, 2012

As a follow-up to my post on keeping tax records, I came across this article on 1099s and reporting income (acknowledgment to the Roth & Company Tax Update Blog for pointing out the article in their May 8th Tax Roundup).  My prior post focused on keeping records after you file a tax return. This article reminds us of the records to keep throughout the tax year. Specifically, it discusses the misconception that if you don’t receive a Form 1099 for income, you do not have to report the income. Wrong. All income must be reported, whether or not you received a 1099, W-2, etc. For example, most banks will not issue a Form 1099-INT if the interest on the account is less than $10, but that interest is still income and needs to be reported on your tax return.

Moral of the story:  Save records like bank account statements throughout the year so you know how much income to report, even if you don’t get a 1099. For more information, read the full article here.

%d bloggers like this: