TAX TIPS (and other stuff)

By Kelly J. Bullis, CPA

2025-August 23rd

 Sadly, death happens to all of us eventually.  Having a good estate plan in place is a loving thing to do for your surviving family members.  That should include a will, a trust, and a power of attorney.

 There are some specific tax rules to follow when dealing with someone who has passed away.  The person responsible (executor for an estate, trustee for a trust) needs to work with a professional tax preparer.

 If the deceased was a spouse, then the most used option is to file a joint tax return for the year of death.  (The following year, the surviving spouse will have to file as either single, or, if there is at least one dependent child, as a “qualifying widow or widower.”  The benefit of a joint return is to give the surviving spouse access to the lower tax rates, larger standard deduction, any carryovers (like capital losses, charitable gifts, net operating losses, etc.)  In the following year, the surviving spouse gets to continue to use any unused carryovers.  (If the decedent’s return is filed as “married filing separate” then at least half the carryovers would be lost to the surviving spouse.)

If the decedent was not married, then their final tax return needs to be filed by the assigned responsible party (on top of executor or trustee, it could be a court appointed representative).  If there is not a trust, then an estate income tax return (form 1041) will need to be filed for everything that happens to their estate after death until it is fully distributed and closed out.  (That means a form 1041 may need to be filed for multiple years.)  Unfortunately, any carryovers on the decedent’s final tax return are lost forever.  They do not transfer to the estate income tax return.

 There is an option for the estate to pay any income tax (at a flat rate of 35%) or the income can be passed through to the beneficiaries in certain circumstances, and the beneficiaries report and pay their share of the estate tax at their most likely lower personal income tax rates.

In the year of death, if there is a revocable trust, then the trust usually starts filing its own tax returns (form 1041 for the trust, not the estate) that year.  Any unearned income after the date of death, that is not transferred to the surviving spouse, is reported on the new trust tax return.  (Income like interest, dividends, capital gains, rentals, etc.)  The trust will continue to file annual trust income tax returns (form 1041) until the trust ceases to exist, which is usually when the last of the trust assets have been distributed to the beneficiaries.  Also, same as the estate, a trust can pay the tax or pass it through to the beneficiaries.

If the decedent’s estate is large enough, there might also be a need to file an estate tax return (form 706).  There would not be any tax owed unless the estate is worth more than $13,990,000.

Have you heard?  Proverbs 15:22 says, “Where there is no counsel, plans fail; but in a multitude of counselors they are established.”

— Kelly Bullis is a Certified Public Accountant in Carson City.  Contact him at 775-882-4459.  On the web at BullisAndCo.com. Also on Facebook.