The Executor or Administrator of an Estate may be required to file three separate returns: an individual tax return for the decedent, estate income tax return and estate tax return.
1. Individual Income Tax Return
The first step is to file the decedent’s final income tax return for the year of his or her death. This return includes income earned by the decedent from January 1 through the date of death. The return is due by April 15 in the year after the decedent died. For example, if your father died on November 30, 2020, his final income tax return would be due on April 15, 2021. The return can be filed by itself, or jointly with a surviving spouse.
2. Estate Income Tax Return
You may also have to file a return for the estate’s income. When a person dies, any income generated by assets that pass through their probate estate exceeding $600 is taxed. The probate estate consists of assets that are held in the decedent’s sole name without a joint holder or named beneficiary. The estate’s first income tax year begins immediately after death. The tax year can end on December 31 or the estate can operate on a fiscal year (e.g. December 1, 2021-November 30, 2022). The estate income tax return must be filed by April 15, 2022 for a December 31, 2021 year end or the 15th day of the fourth month after end of the fiscal year.
If the annual gross income of the estate is below $600, a return does not have to be filed. A tax return is also not required if all the decedent’s income-producing assets pass directly to the surviving spouse or other designated joint holders or beneficiaries.
3. Estate Tax Return
If the total value of all assets in the estate are worth less than $11.7 million in 2021, no estate tax is due to the IRS and a federal estate tax return is not required.
The New York State estate tax threshold, however, is $5.93 million for all decedents that die before January 1, 2021. An estate tax return will have to be filed with the New York State Department of Taxation and Finance and estate tax may be due if all assets in the estate are valued at or above $5.93 million. If the estate exceeds 105% of the exemption amount – the entire estate is taxed – not just the excess.
If the estate is subject to federal and/or New York State estate tax, the return must be filed and the tax must be paid within nine months of the date of death. The estate is granted a six month extension to file, however, an estimated tax payment must be made within nine months. If the return is not timely filed and the tax is not paid with in the nine months, the estate is subject to interest and penalties for the late filing and/or payment.
Determining which tax returns to file and when they are due can be complicated. It is not advisable to try to figure this out on your own. It is best to work with your estate administration attorney and accountant to make sure that you are timely filing any returns that may due and paying any tax that may be owed.