Tax Obligations for Estate Executors

Oct 21, 2015

The executor of an estate has many ongoing obligations, including filing applicable tax returns. On the federal level, nearly all estates must file a final income-tax return for the decedent. Additionally, the executor may need to file one or more federal income-tax returns and an estate-tax return for the estate. (States have different filing requirements.)

Final Income-tax Return

The executor has the responsibility for filing the final income-tax return (Form 1040). Because most individual taxpayers file on a calendar-year basis, the final tax year will typically cover the period from January 1 through the date of death. The final return is generally due on April 15 of the year following the date of death. An automatic six-month extension may be obtained by filing Form 4868 and paying any tax due with the extension.

The executor may file a joint income-tax return with the decedent’s surviving spouse, provided the spouse has not remarried by year-end. Filing jointly can offer certain tax advantages, but it may not be the best option in all cases.

Estate Income-tax Return

Generally, the executor is required to file an income-tax return (Form 1041) for the estate for each tax year in which the estate has gross income of $600 or more. Because the decedent’s final tax year ends on the date of death, the estate’s first tax year begins the following day. The executor may elect to use a calendar or fiscal year. Careful consideration should be given to this decision because, in some cases, the executor may obtain additional tax deferral for a beneficiary by electing a fiscal year that ends after the close of the beneficiary’s taxable year.

The Estate-tax Return

Because the exclusion amount is quite high — $5.43 million for 2015 — many estates will not owe any federal estate tax. However, if the decedent was married, the executor may want to file an estate-tax return anyway.

The reason: The tax law allows a married person’s executor to make an election to pass the deceased spouse’s unused exclusion amount to the surviving spouse for eventual use on his/her own estate-tax return. Generally, this “portability” election must be made on a timely filed estate-tax return of the first spouse. Therefore, if there is any chance that the surviving spouse’s entire estate (including the amount passed from the first spouse) will exceed his/her individual exclusion amount, the executor for the first spouse will want to file an estate-tax return to make the portability election.

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