Taxes After the Funeral

I got one of those calls last week that I dread. A sweet man with whom I met only a few months ago and who, at the time, seemed in perfect health, passed away suddenly. His wife called to ask me about what to do. Since I had just left my CPAS office, my mind wandered to whether or not she and had had completed their 2019 tax returns yet, and – if not – how his death would change that procedure. What follows is guidance I found through the Zinner & Co. (accountants) blog.

When one loses a spouse, the last thing on the surviving spouse's mind is the tax issues to be addressed. Nonetheless, the passing of one's spouse will likely lead to certain federal income tax tasks and responsibilities. Among other things, you'll need to learn the proper procedure for filing and signing your spouse's final income tax return, and you'll need to review the applicable filing status rules. Certain other tax issues may also come into play, which will also be discussed.

Specific procedures must be followed if you are filing and signing your spouse's final income tax return. When you file a return for the decedent as the surviving spouse, the return must be completed according to some specific rules. You must write "DECEASED" across the top of the tax return, along with the decedent's name and date of death.

If a joint return is filed, the surviving spouse must also sign the return. If no personal representative has been appointed by the due date for filing the return, the surviving spouse (on a joint return) should sign the return and write "Filing as Surviving Spouse," in the signature area.

There are many other rules that come into play. For one, be aware that the date of death determines the amount of income and deductions that will be reported on the tax return. In general, marital status is determined on the last day of the tax year (December 31). However, special rules apply when a married taxpayer dies; married filing jointly status is usually allowed for that tax year, even if the death occurred on January 1.

If the decedent was married, however, it is important for you to calculate whether the tax on a joint return would be less than the total tax owed on two separate returns. Keep in mind that, although a joint return will include all of the income and deductions of the survivor for the entire year, it will only include only the income and deductions of your deceased spouse up until the date of death.

If certain property was not owned jointly with the surviving spouse but passed to the decedent's estate at death, the subsequent income on that property would be reported on the income tax return for the estate, not on the joint income tax return. For example, if the deceased spouse owned a bank account, interest income earned through the date of death would be included on Form 1040. However, interest earned after death would be reported on Form 1041.

For the surviving spouse, one of several filing statuses may be appropriate. These can range from married filing jointly, to married filing separately, to qualifying widow(er), to head of household.

In the year of a spouse's death, the surviving spouse usually is considered married for the entire year, for tax purposes. Therefore, the surviving spouse can file a joint return for that year. This rule also applies if both spouses die during the same tax year.

A joint return can be made only with the cooperation of the executor or administrator of the decedent's estate. However, the surviving spouse can file a joint return with the deceased spouse, assuming the decedent had not filed a tax return (as married filing separately) for his or her year of death, before death. Also, no executor or administrator could have been appointed at or before the filing of the joint return or before the due date for filing the return of the surviving spouse, including extension.

“In general, a surviving spouse should calculate taxes both according to the married filing jointly status and the married filing separately status, to determine the most advantageous approach. If the surviving spouse remarries before the end of the year, the married filing separate status must be used for the decedent's final return,” says Gary Sigman, CPA

Although a joint return cannot be filed with the deceased spouse for a tax year after the year of death, the surviving spouse can use the married filing jointly tax rates and standard deduction

amount by filing as a "qualified widow(er)" in each of the following two years. To qualify, the surviving spouse must be unmarried and pay more than half the cost of maintaining the principal home for the entire year of a child who qualifies for a dependency exemption on the surviving spouse's return.

If you are not eligible to file jointly or as a qualified surviving spouse, head of household filing status is the best alternative to minimize tax (assuming that you qualify). This is because the tax rates are lower and the standard deduction higher than if you file single or married filing separately. It's possible that you may qualify for head of the household status if you provide support for a grandchild, sibling, or another relative, and meet all applicable conditions.

There are many other nuances and rules to follow, and at the end of the day, if a surviving spouse is not a CPA or doesn't at least have a strong accounting background, I suggest seeking the guidance of a professional. This stuff is complicated! But it's important, so as with almost any tax issue, please leave the taxes to a professional. I trust my CPA with my life (almost), and I recommend you have that same relationship. Some things are just too important to make mistakes.

Barbara Runnels Coats*, FICF, RICP, Modern Woodmen of America Financial Representative. Tax issues can be complex. Consult your tax professional before making a decision.