How To Properly File Late Taxes For A Deceased Relative?

When a loved one passes away, settling their final tax bill can become a necessary part of managing their estate. If their taxes were not filed before the deadline, you may need to file a late return on their behalf. Filing late taxes for someone who has passed away can be more complex, requiring extra documentation and potentially dealing with late fees or penalties. If resources permit, working with a qualified tax professional can simplify the process and alleviate stress. Read on to understand the basics and learn how to handle a late tax filing.

Who is Responsible for Paying Late Taxes for a Deceased Person?

If the deceased person had an Estate Plan, the designated executor is usually responsible for settling any outstanding tax obligations, including paying late taxes. A surviving spouse can also assume this responsibility, particularly if they planned to file jointly for the tax year. In cases where there is no Estate Plan or designated legal representative, the responsibility typically falls to a next of kin or a loved one who must act as a personal representative. This person should indicate on the tax return that they are acting on behalf of the deceased and ensure that any late taxes, including penalties or interest, are paid accordingly.

Do I Need to File Late Taxes for a Deceased Relative?

If a deceased person did not have their taxes filed by the deadline, you are still required to file their final tax return on their behalf. Generally, this is required if they had sufficient income to necessitate a return, even if they have passed away. An exception may apply if the deceased wouldn’t have had to file a tax return due to low income, as outlined in the chart below for minimum gross income needed.

Minimum Income Requirements for Filing a Late Tax Return

If you are a surviving spouse and intend to file jointly, or if you believe the deceased was entitled to refundable tax credits or a potential refund, you should consider filing a late return. Filing late might involve additional steps to address any penalties or interest due, so consulting with a tax professional can be helpful in these situations.

How to File Late Taxes for a Deceased Person

If you are responsible for filing a late tax return for a deceased loved one, follow these steps to complete the process:

Determine Who Should File the Return 

The executor, administrator of the estate, or a surviving spouse is generally responsible for filing a deceased person’s tax return. If the surviving spouse typically uses the married filing jointly status, they can file as usual, writing “deceased,” the spouse’s name, and the date of death at the top of the tax form. Executors or legal representatives should file IRS Form 56 with the late tax return (using Form 1040 or 1040-SR) to establish their authority to file on behalf of the deceased.

Identify the Late Filing Requirements 

Since the tax return was not filed by the standard deadline, it will be considered late. For example, if the person passed away in 2021 and the tax return was due on April 18, 2022, but was not filed on time, you are now dealing with a late return. You may need to file IRS Form 4868 if you need to request additional time, though this does not waive penalties or interest for late filing.

Complete the Late Return 

Use the same tax forms that the deceased would have used if they were alive. If you were not involved in their finances before, locating all necessary documents might be challenging. A prior year’s tax return can be a helpful guide for finding W-2s, 1099s, investment income, and bank interest. The IRS also provides guidance on obtaining past tax records for a deceased person, which can be helpful in gathering necessary information.

Account for Multiple Tax Returns if Necessary 

Depending on the circumstances, you may need to file multiple late returns. This could include federal, state, and local returns, as well as business taxes if applicable. Additionally, if the deceased did not file returns for prior years, you might need to address those as well. For instance, if they passed away in February 2022 but did not file for 2021, you would need to complete both the 2021 and 2022 tax returns.

Deduct Eligible Medical Expenses 

If the deceased had significant medical expenses, you may be able to itemize deductions for those costs on their return. Medical expenses exceeding 7.5% of their adjusted gross income are tax-deductible, which may reduce any taxes owed. Eligible expenses include medical bills paid up to one year after death, which can be deducted if they exceed the threshold.

Filing late taxes for a deceased person can lead to penalties and interest, so consulting with a tax professional is often helpful. They can assist in minimizing late fees and ensuring that all necessary documentation is correctly filed.

Who Gets the Tax Refund When Filing Late Taxes for a Deceased Person?

If you are filing a late joint return as a surviving spouse, you will receive the refund directly, with no additional steps needed. However, if you are filing on behalf of an unmarried deceased taxpayer and expect a refund, you may need to complete and attach Form 1310, unless you are a court-appointed personal representative.

If you are filing as a court-appointed personal representative, you must attach a copy of the court certificate confirming your appointment. For all other filers requesting a refund on behalf of the deceased, Form 1310 should be completed and submitted with the tax return. Consulting with an attorney or accountant is advisable to understand the specific requirements and ensure that any due refund is claimed correctly.

How to File a Tax Extension for Late Taxes of a Deceased Person

If the deceased person’s taxes are overdue and you need additional time to file, you can request a tax extension on their behalf. Keep in mind that this is an extension to file, not an extension to pay any taxes owed. To request this extension, complete IRS Form 4868 and submit it along with any necessary supporting documents and estimated tax payments for the deceased. Once approved, the extension typically allows until October 15th of the same year to file the tax return.

While this extension provides more time to file, any unpaid taxes may still incur penalties and interest, so paying the estimated amount due along with the extension request is advised.

How to Handle Multiple Years of Unfiled Taxes for a Deceased Person

Dealing with multiple years of unfiled taxes for a deceased relative can be challenging. Here are some steps to guide you through the process:

Gather Financial Records 

Collect documents such as W-2s, 1099s, bank statements, and past tax returns. If records are missing, contact the IRS for tax transcripts for the unfiled years.

Prioritize by Filing Order 

File the oldest returns first. Late fees, penalties, and interest usually start with the earliest unfiled tax year, so addressing them in order can help minimize costs.

Check for Required State and Local Returns 

Remember that you may need to file state and local tax returns in addition to federal returns. Each jurisdiction may have different rules and deadlines for deceased taxpayers.

File Using the Appropriate Forms 

Complete the standard tax forms (such as 1040 or 1040-SR) for each year of unfiled taxes. You may need to file additional forms, such as Form 4868, if requesting more time.

Consider a Tax Professional’s Help 

Multiple years of taxes can quickly become complex, especially with late penalties. A tax professional can provide guidance on managing the filings and may be able to negotiate penalties.

How Long to Keep Tax Returns for a Deceased Person

For most situations, it is advisable to keep the deceased person’s tax records for at least seven years to comply with the various statutes of limitations set by the IRS. This period typically covers potential audits, amended returns, or claims. However, if the tax return was filed with fraudulent information or if a final return was never filed, the IRS has no time limit and can review records indefinitely.

To be safe, if you’re filing late taxes for a deceased person, keep all associated records, documents, and correspondence until the statute of limitations has passed, and consult a tax professional for guidance on how long to retain specific documents.

Common Mistakes to Avoid When Filing Late Taxes for a Deceased Relative

When filing late taxes for a deceased loved one, be mindful of common mistakes that can lead to issues like penalties, delays, or unexpected tax liabilities. 

Here are some key pitfalls to avoid:

• Using Incorrect Forms: Make sure you are using the correct tax forms (e.g., Form 1040 or 1040-SR) and include Form 56 to establish your authority as a personal representative if required.
• Failing to Notify the IRS: Always inform the IRS that you’re filing on behalf of the deceased. This can involve writing “deceased” along with their name and date of death on the tax form.
• Missing Documentation: Gather all necessary documents, such as W-2s, 1099s, and prior year returns. Missing documents can cause delays and may lead to inaccuracies in the filing.
• Not Meeting Deadlines: Even if you’re filing late, be aware of any specific deadlines for extensions, additional penalties, or interest accrual. Missing deadlines can increase costs.
• Overlooking Deductions and Credits: Check for potential deductions, like medical expenses, or refundable credits that the deceased may be eligible for. These can reduce any taxes owed and potentially lead to a refund.
• Ignoring Professional Help: Filing late taxes for a deceased person can be complex. Consulting a tax professional can ensure accuracy and compliance, reducing the risk of costly errors.

Avoiding these mistakes can help you file a late return efficiently and accurately, minimizing additional stress and potential financial repercussions.

Tax Implications of Inherited Assets

When handling taxes for a deceased person, understanding the tax implications of inherited assets can help prevent unexpected liabilities:

Determine the Stepped-Up Basis 

Inherited assets often receive a “stepped-up” basis, meaning their value is adjusted to the fair market value at the time of the decedent’s death. This can impact capital gains tax when the asset is sold.

Report Required Minimum Distributions (RMDs) 

If the deceased owned retirement accounts (e.g., IRA, 401(k)), you may need to report RMDs on their final tax return. Missing these can lead to significant penalties.

Check for Potential Tax on Inherited Property Sales 

If you plan to sell inherited property, be aware of capital gains tax on any appreciation from the stepped-up basis. Holding onto the property longer can also affect tax implications.

Consider Estate and Inheritance Taxes 

Depending on the value of the estate, estate taxes may apply. In some states, inheritance taxes might also be owed by the beneficiaries. Consult with a tax professional to understand these taxes.

By addressing these key points, you can better navigate the tax implications associated with inherited assets, ensuring compliance and potentially reducing tax liabilities for the estate.

Conclusion

Filing late taxes for a deceased relative can be challenging and emotional. However, it is necessary to settle their financial obligations. By understanding the steps involved, you can navigate the process more easily. Whether you handle the task yourself or seek help, being informed is essential. Knowing about required forms, deadlines, and potential deductions can make a difference. Gather all necessary documents and meet any deadlines. If needed, consult a tax professional to avoid penalties. Taking these steps helps you close this chapter with confidence and peace of mind.

FAQs

Who is responsible for filing late taxes for a deceased person?

The executor, surviving spouse, or a designated personal representative typically handles filing late taxes for a deceased individual.

What forms are needed to file late taxes for a deceased relative?

You’ll need IRS Form 1040 or 1040-SR, and Form 56 to establish authority if you’re the personal representative. Form 1310 is required if you are claiming a refund on behalf of the deceased.

Are there penalties for filing taxes late for a deceased person?

Yes, penalties and interest may apply for late filing and payment. Consulting a tax professional can help minimize these fees.

Can I request an extension for filing late taxes on behalf of a deceased person?

Yes, you can file IRS Form 4868 for an extension. But this only extends the filing deadline, not the payment due date.

How long should I keep tax records for a deceased person?

Generally, keep tax records for at least seven years to comply with IRS guidelines, covering potential audits or amended returns.