Academic journal article Journal of Accountancy

Decedent's Final Income Tax Returns

Academic journal article Journal of Accountancy

Decedent's Final Income Tax Returns

Article excerpt

Practical planning tips for the will's executor or the estate's administrator. hen an individual dies, someone usually is selected to act as his or her personal representative, either as an executor (if named in the decedent's will) or an administrator (if the taxpayer died without a will or failed to name an executor). It is this representative's duty to prepare and file a final federal income tax return for the taxpayer for the year of his or her death.

This final return covers the portion of the year during which the taxpayer was alive. For calendar-year taxpayers, it is due by April 15 of the year following the year of death.

FILING ISSUES

There are many issues a personal representative must consider in preparing and filing the decedent's final return.

Joint return. If there is a surviving spouse, he or she and the representative must determine whether a joint return can and should be filed. A joint return is permitted only if the decedent was married at death, the surviving spouse did not remarry, during the tax year and both taxpayers had the same tax year.

Savings bonds. As a rule, taxpayers choose when to report the interest from U.S. savings bonds--annually or deferred until the bonds are redeemed. If before death the taxpayer elected to include the annual increment in the value of the bonds as income, the increase in value in the year of death must be reported on the final return. If the taxpayer never made that election, the representative has a choice: Include all interest earned before death on the final return, report the interest earned before death on the estate income tax return or defer the income (with the heirs who cash the bonds at maturity reporting all past interest).

TYPES OF INCOME

Income through the date of death should be included on the final return using the same method of accounting the taxpayer used before death. For cash basis taxpayers, this means the income received and expenses paid prior to the date of death are reported on this final return.

Salary, wages and bonuses received before death (including uncashed checks) must be included on the final return; accrued or unpaid compensation (for example, vacation, sick pay, commissions, etc. …

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