What tax returns need to be filed after someone dies?
In Pennsylvania, here are the main tax returns to consider:
Personal Income Tax (1040)
By April 15 of the year after death, file the deceased’s final income tax return (Form 1040). If the deceased was married, it can be a joint return with the surviving spouse.
Inheritance Tax Return (Form REV-1500)
If there were assets subject to Pennsylvania inheritance tax, a return must be filed within nine months of the date of death. It is due on the same day of the month as the date of death. For example, the REV-1500 for someone who died January 3 would be due by October 3.
To save 5% on the inheritance tax bill, make an estimated payment within three months. That is, for someone who died January 3, make the payment by April 3.
Pennsylvania inheritance tax rates are as follows:
• 0 percent on transfers to a surviving spouse or to a parent from a child aged 21 or younger;
• 4.5 percent on transfers to direct descendants (children, grandchildren, etc.) and lineal heirs (parents, grandparents, etc.);
• 12 percent on transfers to siblings; and
• 15 percent on transfers to other heirs, except charitable organizations, exempt institutions and government entities exempt from tax.
Estate or Trust Return (1041)
If a probate estate is being administered on behalf of the person who died, a Form 1041 must be filed with the IRS if: (1) the estate has gross income for the tax year of $600 or more, or (2) one or more of its beneficiaries is a nonresident alien.
If the deceased had assets being administered by a trust, the trust must file a Form 1041 if (1) or (2) apply. Most types of trust must also file a 1041 if the trust had any taxable income for the tax year.
Generally speaking, an estate or trust can file Form 1041 on either a calendar year or fiscal year basis.
Estate Tax Return (706)
If the federally taxable estate exceeds the applicable exemption ($11.58 million for those who die in 2020), a federal estate tax return (Form 706) must be filed.
A Form 706 can optionally be filed to preserve any unused exemption amount for a surviving spouse, a concept referred to as estate tax “portability.” You can read more about this issue, and when to elect to file Form 706 to preserve estate tax portability, by clicking here.