As you know from the previous blog, a personal representative may also be responsible for filing a decedent’s final individual income tax return or Internal Revenue Service (IRS) Form 1040. You will also have to make sure you file an IRS Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. As the personal representative appointed to administer an estate, you must also file a federal income tax return on the estate’s behalf.
The estate’s gross income includes everything owned at the decedent’s death using a fair market value in most cases. The federal tax definition of fair market value is the price a willing and reasonably informed buyer would pay for the specific item during an arms-length sale (not forced). The gross estate includes cash, investment securities, real property, personal property, trusts, business assets, retirement annuities, insurance proceeds and any other assets. The federal income tax definition of gross estate also typically includes non-probate property in addition to probate property.
You should make sure you speak with an estate planning attorney or certified public accountant to understand your federal income tax responsibilities as a personal representative appointed to administer an estate. You can contact our office, and we can help you determine whether your estate is complex enough to warrant hiring a certified public accountant or other tax professional. An accountant can help you find ways to reduce the estate’s tax liabilities by taking certain deductions. Keep in mind that all estates are not liable for federal estate taxes, and typically, only larger estates will have to pay them.
- Thought of the Day - February 8, 2023
- Thought of the Day - February 1, 2023
- Thought of the Day - January 25, 2023
