You know Form 1040 – now learn to complete the final one

When a taxpayer dies, you need to know how to get the final Form 1040 right. That includes determining the proper tax year, selecting the correct filing status, and reporting all income and deductions with precision.

With this foundation, you’ll be able to complete the final return accurately and help families avoid delays or questions from the IRS at an already difficult time.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their corresponding answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.    

Q: What should we do if the person responsible for filing the return has not begun probate administration?

A: If no court-appointed personal representative exists, the person in charge of the decedent’s property may file the final Form 1040, U.S. Individual Income Tax Return. For refunds, include Form 1310, Statement of Person Claiming a Refund Due a Deceased Taxpayer, unless a court-appointed representative signs or a surviving spouse files a joint return. File Form 56, Notice Concerning Fiduciary Relationship, when the fiduciary relationship begins so the IRS recognizes the fiduciary.

Q: Does a revocable living trust avoid probate?

A: Generally, yes, if it’s properly funded. Assets titled in the name of trust usually pass outside probate; assets not retitled may still require probate. During life, a revocable living trust is typically a grantor trust; after death, it usually becomes irrevocable and may require a Form 1041, U.S. Income Tax Return for Estates and Trusts.

Q: Can wages be deposited to the decedent’s bank account after death, or will ACH deposits be returned?

A: Bank handling varies, but for tax purposes, unpaid wages at death are income in respect of a decedent (IRD) when later received by the estate, trust, or beneficiary and are reported on Form 1041 rather than on the decedent’s final Form 1040.

Q: What happens when the decedent leaves debts but no assets?

A: That’s an insolvent estate under state law. A final Form 1040 may still be required. A Form 1041 is required only if the estate has $600 or more of gross income or any nonresident alien beneficiary. Forgiven debt may create cancellation-of-debt (COD) income, subject to exclusions such as insolvency.

To learn more about the final Form 1040, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.