To some people, estate administration is synonymous with probate court hearings. Others might picture the process of distributing the deceased person’s property to beneficiaries or heirs.
Estate administration does require the management and distribution of estate resources. However, personal representatives also need to settle the financial affairs of the deceased individual.
Taxes are among the financial obligations that personal representatives must address during estate administration. In most cases, filing an income tax return is a key component of the estate administration process.
What tax returns are necessary?
Typically, even if the deceased individual has a surviving spouse, the personal representative of their estate files their final income tax return. Doing so notifies the Internal Revenue Service (IRS) that a person has died, and therefore there should be no more income tax returns using their Social Security number.
Additionally, the IRS has an opportunity to reconcile any lingering income tax obligations. The personal representative generally needs to pay any remaining income tax obligations using estate resources.
If they have to sell estate resources, they may have to file a different income tax return. Estate sales that liquidate personal property or the sale of high-value estate resources, such as real estate or vehicles, could make an estate income tax return necessary. If personal representatives generate $600 or more in revenue when liquidating estate resources, they generally need to report that income to the IRS and pay taxes on it.
Fulfilling tax obligations is critical for the protection of personal representatives. People who understand their tax obligations are less likely to make costly mistakes during estate administration.