Nothing in life is certain except death and taxes, right? But did your client know that even after death, the IRS expects a tax return for the year in which the deceased died? Pretty creepy, but a fact nevertheless. This is because even when a person dies, their estate lives on until it is fully distributed. During the time between the death of the deceased and the estate distribution, the estate itself is generally earning income and deems the filing of a tax return necessary. The executor, administrator or other legal representative is generally the one who inherits the responsibility of filing all returns for the deceased. A surviving spouse may assume responsibility for filing a joint return for the year of death if no executor or other legal representative has been appointed. However, if a legal representative has been appointed, the surviving spouse must get consent from the legal counsel in order to be able to file a joint tax return.
Generally, the same method that the deceased used while he was alive is used in his death to prepare his final return to account for income up to the date of the death. Everything is taxed as it would have been if the person had lived for the entire year. Deductions for medical expenses can even be claimed on the tax return as long as they are not deducted for estate tax purposes. A statement must be filed affirming that no estate tax deduction has been taken and that the rights to the deduction have been waived in order to be able to claim medical deductions on the personal tax return. Exemptions are treated the same way they would be if the deceased have lived for the full year. Exemption amounts are not reduced regardless of when in the year the person died. If the deceased contributed more than one-half of a dependents annual support, that dependent is still considered an exemption on the tax return.